Aviva Plc · LSE:AV.
Aviva — Merger or Acquisition (December 2014)
33 slides from Aviva's merger presentation, Dec 2, 2014
Slide 1: Recommended Acquisition of Friends Life Group
Recommended Acquisition of Friends Life Group 2nd December 2014
Slide 2: Legal Disclaimer
Legal Disclaimer NOT FOR RELEASE, PRESENTATION, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION. This presentation (other than slides 21-28) has been prepared by Aviva plc (“Aviva”
Slide 3: Transaction Overview
Transaction Overview Mark Wilson Group Chief Executive Officer 3
Slide 4: Agenda
Agenda Transaction Overview Mark Wilson Financial Impacts Tom Stoddard Friends Life opportunity Andy Briggs Conclusions Mark Wilson Q&A 4
Slide 5: Transaction Rationale – Financial and strategic
Transaction Rationale – Financial and strategic Financial Strategic • c.£0.6bn incremental cash flow. • Secures leading insurance and savings position £1.15 billion1 additional holding in our home market company liquidity • Brings c.5 million Friends Life customers to • Leverage consistent with S&P
Slide 6: Recommended Acquisition of Friends Life Group
Recommended Acquisition of Friends Life Group • 0.74 new Aviva shares for each Friends Life share valuing Friends Life at £5.6bn / 394p per share1 • Terms reflect requirement for Friends Life Group to buyout “Value Share” for approximately £220m and proposed 24.1p per share second Key Terms interim
Slide 7: Complementary Businesses
Complementary Businesses Aviva Friends Life Combined Brand − Broad Product Range − Geographic Diversity / Scale − Asset Management − Excess Cash Flow − Corporate Pensions Leadership − Balance Sheet Leverage − Proven Back Book Management Expertise − Complementary stren
Slide 8: Secures Pre-eminent Position in Home Market
Secures Pre-eminent Position in Home Market Largest Customer Franchise in the UK UK Customers2 (m) True customer composite, 16 digital first model • 16 million UK customers1 5 Friends Life • Access to 1 in 4 households 11 4 Aviva 8 GI 7 • Substantial opportunity to 6 improve cross sell through true
Slide 9: Substantial Value from Synergies
Substantial Value from Synergies Cost Synergy Breakdown Source of expected synergies: • Life company c.60% c.20% c.20% £225m Best of both approach – Corporate pensions on Friends Life’s platform – Utilise respective strengths in protection – Annuities on Aviva’s platform • Investment management – In
Slide 10: Substantial Value from Synergies: Proven Expertise
Substantial Value from Synergies: Proven Expertise Aviva Track Record in Reducing Costs Friends Life Proven Integration Expertise Group: Cost Reduction Target UK Life: Expense Base Reduction Capital Synergy Realisation £m £m UK Businesses Acquired End 2013 ASLAS FPLP FLL 568 729 Mainly Heritage ASL
Slide 11: Asset Management – significant scale and earnings accretion
Asset Management – significant scale and earnings accretion Up to 29% Increase in AuM Over Time 2013 Friends Life AuM Opportunity: up to c. £70bn1 Increase in scale / AuM − Total Friends Life assets under £309bn administration of c.£100bn − AuM opportunity of up to c.£70bn – £241bn +£49bn c.29% incr
Slide 12: Accelerates Financial Transformation, Creating Platform for Growth
Accelerates Financial Transformation, Creating Platform for Growth Leverage (TNAV) Leverage (S&P) Central liquidity £2.4bn 44% 30% 39% 28% £1.25bn H1 2014 H1 2014 H1 2014 H1 2014 9M 2014 9M 2014 Combined1 Combined1 Combined2 No need to de-lever further Consistent with AA rating Strengthened holding
Slide 13: Financial Impact
Financial Impact Tom Stoddard Group Chief Financial Officer 13
Slide 14: Key Messages
Key Messages • Underperforming UK Life cells prioritised for back book efficiency Improves return on capital 1 in key UK businesses • Substantial value creation from synergies • Facilitates growth and reinvestment in higher returning products Reduces risk and creates • Complementary risk profile – d
Slide 15: Leverage Targets Achieved on Completion
Leverage Targets Achieved on Completion Debt Leverage S&P Leverage1 (IFRS Tangible Capital)1 % % 30 • Pro forma leverage below targets 44 on all key metrics • Group focus on S&P leverage 28 going forward 39 – Consistent with AA rating • No impact on existing plans to reduce internal loan to £2.2bn 1
Slide 16: Stronger and More Resilient Capital and Liquidity Position
Stronger and More Resilient Capital and Liquidity Position Aviva Friends Life (As per Aviva disclosure) (As per Friends Life disclosure) Available £18.0bn £8.3bn Required £10.0bn £4.3bn Economic Capital Position1 (1H2014) Surplus £8.0bn £4.0bn Ratio 180% 193% £(0.9)bn for 100bps increase in £(0.5)bn
Slide 17: Complementary Aviva and Friends Life risk profile
Complementary Aviva and Friends Life risk profile ICA Required Capital £bn1 Aviva Friends Life Required Capital £bn Credit Longevity Equity Lapses Interest FX Inflation Operational Expenses Commercial Latent Property GI Claims Mortality Other GI rates mortgages Claims Volatility • Diversification be
Slide 18: Transaction Accelerates Achievement of Financial Outcomes
Transaction Accelerates Achievement of Financial Outcomes Capital Markets Day1: Desired Outcomes Transaction Impact Issue Plan Timing Group operating Significant synergy potential Below 50% YE 2016 1 expense ratio Reduces Combined Group operating expense ratio by c. 2pps2 Financial Outcomes Ad
Slide 19: Positive Financial Impacts
Positive Financial Impacts Full Year 2013 Key Performance Indicators Expected Impact of Combination Aviva Friends Life Excess Centre Cash flows1 £0.4bn £0.3bn Adds c.£0.6bn with realisation of synergies by 2017 Broadly neutral upon realisation of run rate Operating Earnings Per Share 42.6p 28.6p syn
Slide 20: Integration Plan in Place
Integration Plan in Place Preliminary Integration Plan 2014 2015 2016 2017 • Andy Briggs, CEO of UK Life Due Diligence & Deal Transaction Due Diligence • Nick Amin, Director of Transformation & Integration Detailed Design & Analysis & • Jonathan Moss, Director of UK Heritage / Back Book Integration
Slide 21: Opportunity for Friends Life
Opportunity for Friends Life Andy Briggs Group Chief Executive Friends Life 21
Slide 22: Compelling Financial and Strategic Rationale for Friends Life’s Shareholders
Compelling Financial and Strategic Rationale for Friends Life’s Shareholders Enhancing Value1 Accelerating Strategy • Friends Life shareholders benefit from: • Cash generation • 27% premium to Friends Life’s 3 month Superior back book management average share price2, plus Scale and cost advantag
Slide 23: Attractive UK Life Opportunity
Attractive UK Life Opportunity Back Book Market leading management team Superior back book 1 management Friends Life’s expertise enhances the ability to unlock value from Aviva’s back book Potential capital synergies from combination and diversification benefits Cash flow Significant scale a
Slide 24: Superior Back Book Management
1 Superior Back Book Management Combined Proposition The Opportunity Driving Improvement Market leading #1 The largest back book in the UK1 • Process simplification Costs management team • Synergies Proven track record in 5 UK Life companies2 • Solvency 2 optimisation managing back books Capital
Slide 25: Scale and Cost Advantage
2 Scale and Cost Advantage1 Combined Proposition Driving Improvement Evidence of Delivery UK Life AuA (2013, £bn)1 UK Life Cost / AuA (bps)2,3 Friends Life’s cost reduction achieved (£m) 220 160 55 140 105 31 170 54 50 Secured 60 129 Delivered 45 86 120 c.10bps 45 FY 2011 FY 2012 FY 2013 70 40 35 20
Slide 26: Scale Leadership Positions Across Core UK Life Growth Markets
Scale Leadership Positions Across Core 3 UK Life Growth Markets The Combined Proposition Driving Improvement Opportunity2 • Complementary new business focus - Friends Life: mid to large corporates • Customer engagement Corporate - Aviva: SMEs 3.5x • Cost leadership Pensions • Market leading scale pl
Slide 27: Improved Customer Proposition: Retirement Income Market Example
Improved Customer Proposition 4 Retirement Income Market Example The Opportunity Leading Proposition What Our Customers Need • c.12m UK Life customers with Broad product offering “Take control for me and 16m overall UK customers1 make it simple” • 1 in 4 retiring Defined “I want guaranteed income fo
Slide 28: Compelling Financial and Strategic Rationale for Friends Life’s Shareholders
Compelling Financial and Strategic Rationale for Friends Life’s Shareholders Enhancing Value1 Accelerating Strategy • Friends Life shareholders benefit from: • Cash generation • 27% premium to Friends Life’s 3 month Superior back book management average share price2, plus Scale and cost advantag
Slide 29: Summary
Summary Mark Wilson Group Chief Executive Officer 29
Slide 30: Transaction Reinforces Wider Growth Agenda
Transaction Reinforces Wider Growth Agenda Transaction Impacts • Poland, Turkey, Greater China and S.E. Asia (39% VNB growth1) 1 Growth Markets • Organic growth plus potential distribution/ bancassurance opportunities Accelerates Aviva balance sheet • Improve cross-sell ratio of 1.6 products to comb
Slide 31: Q&A
AVIVA Q&A
Slide 32: Appendix – Basis of Preparation of UK Life Expenses / AuA
Appendix – Basis of Preparation of UK Life Expenses / AuA The peer group is composed of the UK Life businesses of L&G, Standard Life, Prudential and AEGON. All figures have been taken from 2013 annual report and accounts unless otherwise stated. 1. The peer group does not include LBG (Scottish Widow
Slide 33: Recommended Acquisition of Friends Life Group
Recommended Acquisition of Friends Life Group 2nd December 2014