Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — H1 2023 Earnings Presentation
57 slides from Standard Life's earnings presentation, Sep 18, 2023
Slide 1: Half year 2023 results
— Se Le Oe Phoenix Half year 2023 results 18 September 2023 o
Slide 2: Welcome and plan for today
Good morning everybody, and welcome to Phoenix Group’s 2023 half year results presentation. Now, as you know, we have always run our business focused on cash and capital, as that is what underpins our sustainable, and growing dividend. But we recognise the industry has transitioned, to IFRS 17. So t
Slide 3: Business review
Business review Andy Briggs Group Chief Executive Officer al Phoenix
Slide 4: Strong first half performance
At Phoenix, we have a clear and focused strategy, and I am delighted with how well our team are executing, on that strategy. Delivering strong growth, and resilient cash generation. We have more than doubled new business long-term cash, year-on-year, to £885 million. Thanks to a strong first half pe
Slide 5: Single strategic focus: customers' journey to and through retirement
Phoenix has a single strategic focus – which is helping customers journey to and through retirement. This is important, because we are seeking to meet a huge societal need. With only around 10% of people currently getting advice on their journey. And only 1-in-7 defined contribution savers on track
Slide 6: UK market structural growth opportunities
Now, many are saying that the UK economic environment is challenging, and it is for most industries. But for us, the structural growth opportunities in the market, are only being accelerated, by the current economic environment. So, we are seeing strong growth in Workplace, fuelled by high levels of
Slide 7: Where we play in the market
Now, a bit more colour on where we play in the market. Phoenix is the UK’s largest long-term savings and retirement business. We have a diversified, and balanced, business mix, across the savings life cycle. And two-thirds of our business is capital-light, fee-based products. Our strategy is designe
Slide 8: Trusted family of brands
Having trusted brands is critical to engaging customers, and having the credibility to support them, with some of the most important financial decisions they make. We are therefore very proud to have a family of brands, to successfully engage and support customers, throughout their savings lifecycle
Slide 9: Three strategic priorities
We deliver that purpose, and our strategy, by focusing on our three strategic priorities; Growing organically and through M&A. Optimising our in-force business. And enhancing our operating model and culture. All of which are informed by, and in support of, our key ESG themes, across both Planet and
Slide 10: Strong organic growth in Workplace
Starting first with our strong organic growth. I am delighted with the further progress we have made this year, on our capital-light fee-based business, with new business long-term cash up almost 50%, year-on-year. This growth has been driven by our Workplace business, and reflects our success in le
Slide 11: New scheme wins and Retail opportunity
It is therefore great to see that our new scheme wins continue to accelerate. And we are now winning the big schemes too, which has enabled us to attract around £3 billion of new scheme asset wins, over the past 12 months. We expect these assets to transfer across to us in 2024 and 2025. And so will
Slide 12: Retirement Solutions growth and Phoenix Re
We also continue to deliver sustainable growth in our Retirement Solutions business, where we are winning in a competitive BPA market, with our strong proposition, and the Standard Life brand. This market is large and growing, ever more strongly, due to higher interest rates. Our participation is co
Slide 13: Product for new and existing customers
This product is available to both new and existing customers, under the Standard Life brand. And is another example of us filling in the remaining gaps, to complete our full-service customer proposition. Turning now to M&A… 11
Slide 14: M&A track record
We have a long and successful track record of delivering strong returns from M&A. By buying at an attractive price, and delivering significant cost and capital synergies, we deliver cash generation over the life of the business, which far exceeds the purchase price. But what is particularly pleasing
Slide 15: Capacity to fund deals
swiftly. And to manage multiple migrations concurrently. We also have the financial capacity to fund deals. With our surplus cash and capital ready to deploy. And we have debt funding capacity too, if required, with a Fitch leverage ratio that was 25% at the end of 2022. 12
Slide 16: Optimising in-force business and operating model
Our second and third strategic priorities are optimising our in-force business, and enhancing our operating model and culture. These are the core capabilities that drive management actions, with £412 million of benefit delivered, in the first half. And these are the same capabilities, that also help
Slide 17: Summary of strategy execution
So, in summary, we are executing on our strategy, to deliver a dividend that is sustainable, and grows over time. Our organic growth is compelling. We've more than doubled our new business long-term cash, in the first half. We are comfortably on track to deliver our target, of £1.5 billion per annum
Slide 18: Financial review
Thank you Andy and good morning everybody. 15
Slide 19: Financial framework
Phoenix has a clear financial framework, which is designed to support growth and deliver enhanced shareholder returns over time. We are investing in our growth, which is accelerating, as we maintain our balanced business mix. And our high levels of predictable cash generation provide the financial f
Slide 20: Strong financial performance in first half
Phoenix has delivered a strong financial performance in the first six months of the year. Our dependable cash generation continues to emerge as expected, and we have more than doubled incremental new business long-term cash generation, while our long-term free cash has also increased. And our balanc
Slide 21: Cash generation
Starting with cash. We have delivered £898 million of cash generation in the first half. And now expect to deliver at the top-end of our target range of £1.3-to-£1.4 billion for the full year, with a long track record of meeting or exceeding our targets. Our Group Holding Company cash balance is aro
Slide 22: Group in-force long-term free cash
Group in-force long term free cash is a measure of the cash that will be available to our shareholders over time, from our existing business. It is calculated net of the cash needed to service and redeem all outstanding debt, and after deducting committed integration costs. During the first half, it
Slide 23: Solvency II capital position
Our resilient Solvency II capital position is enabling us to invest surplus capital into growth opportunities. With our shareholder capital coverage ratio of 180%, remaining at the very top-end of our target range, even after this investment. Our surplus, prior to investment, was broadly flat. With
Slide 24: Management actions
Our ability to deliver management actions is a key differentiator for Phoenix, and we continue to demonstrate our capability here, with £412 million of management actions delivered in the first half. This significant ongoing level of management actions reflects our focus on optimising and enhancing
Slide 25: In-house asset management capability
We have invested into enhancing our in-house asset management capability. We have built an expert team of investment professionals, who set the strategic asset allocation, and oversee the performance of our assets. This capability enables us to operate our differentiated strategic partnership model,
Slide 26: Repeatable management actions pipeline
an ongoing basis. And deliver a repeatable pipeline of management actions, over the very long term. Looking next in detail at our credit portfolio… 22
Slide 27: Credit portfolio
As Andy outlined earlier, our strategy is designed to maintain a balanced business mix, with credit risk making up a small proportion of our balance sheet. We therefore maintain a prudent and diversified £34 billion shareholder credit portfolio, which is currently around 13% of our total £269 billio
Slide 28: Sustainable organic growth
Phoenix is now delivering sustainable organic growth, year-in, year-out. The growth in our new business net fund flows is accelerating, through our success in Workplace and BPA. And we now expect Group net fund flows to be positive in 2024, for the first time in Phoenix’s history! As new business in
Slide 29: New business long-term cash generation
I am delighted therefore that we have more than doubled incremental new business long-term cash generation to £885 million in the first half. The contribution from our fee-based businesses increased nearly 50% year-on-year to £220 million, primarily due to a strong performance in Workplace. Retireme
Slide 30: Workplace growth
Building on the momentum we saw in 2022, our Workplace business has continued to grow strongly in the first half through the Standard Life Brand This is due to the investment we have made into our enhanced Workplace proposition, which is helping us to both retain our existing schemes, and win new sc
Slide 31: Workplace pipeline
flows and cash generation. We are also quoting on a strong pipeline of opportunities, totalling £3.5 billion of assets, and are confident of winning further new schemes over time. 26
Slide 32: Bulk purchase annuities
The strength of the Standard Life brand is also helping us to win new business in a competitive BPA market. With £3.2 billion of premiums written in the first half, driving £665 million of new business long- term cash generation, with an improved cash multiple of 3.4 times achieved. Our capital stra
Slide 33: IFRS 17 introduction
IFRS 17 is a new accounting standard that became effective on 1st January 2023. However, I want to emphasise that this accounting change does not alter the underlying economics of our business. It therefore has no impact on our strategy or dividend, and we will continue to remain focused on deliveri
Slide 34: IFRS 17 impact on shareholders' equity
It is important to note that the impact of IFRS 17 is different for Phoenix, due to our history of M&A. As a result of the value-accretive transactions we have completed, around 95% of our business has been recognised using the Fair Value approach. And this results in a lower CSM at transition and i
Slide 35: IFRS 17 operating profit
assumption changes and management actions to the CSM. There is also a small reduction from items not recognised in operating profit under IFRS 17. Looking to full year 2023, I would expect a broadly similar level of annual operating profit. So turning now to our leverage position… 29
Slide 36: Fitch leverage ratio
Our restated Fitch leverage ratio at the end of 2022 was 25%. This includes the impact of the transition to IFRS 17, which had only a small adverse impact on the ratio. There is a material reduction in the ratio due to the consistent application of the Fitch ratio calculation with others in the indu
Slide 37: De-levering and financial flexibility
We have also been proactively de-levering our balance sheet over the past few years, with £772 million of debt repaid since the end of 2020. And importantly we have increased our Group in-force long-term free cash to £12.5 billion, which is after the redemption of all of our outstanding debt and the
Slide 38: Financial conclusion
So, to conclude. We are executing on our strategy and delivering on our financial framework, of cash, resilience and growth. We have delivered a strong first half financial performance across our core reporting metrics. And we have clear targets for this year and beyond. All of which support us in d
Slide 39: Summary
Summary Andy Briggs Group Chief Executive Officer al Phoenix 33
Slide 40: Summary
Thanks Rakesh In summary. Phoenix is successfully executing on its single, strategic focus – helping customers journey to, and through retirement. We do this by leveraging our position as the UK’s largest long-term savings and retirement business. Offering a full range of products and services, to s
Slide 41: Attractive dividend yield
We offer an extremely attractive yield today. Which is sustainably funded, by the resilient cash from our current in-force business, over the very long term. And will grow over time, both organically, and through M&A. And with that, we will move to questions. 34
Slide 42: Q&A
As a reminder, the purpose of this Q&A session is to cover our strategy and the results that we have just presented. We will be hosting an IFRS 17 transition session for the analysts following this, so please save any detailed technical accounting questions for that. Given our agenda today, we have
Slide 43: Appendices
Appendices 36
Slide 44: Appendices footnotes
Appendices 3 sustainability targ Footnotes ail Phoenix 37
Slide 45: Appendix 1: Debt maturity profile
Appendix 1: Debt maturity profile as at 30 June 2023 1H23 2H23 1H24 2H24 1H25 1H26 2H26 1H27 2H27 1H28 2H2 MEE RTibond fll Tier2 bond fll Tier3 bond debt converted into GBP based on the closing 30 June 2023exchange rates 5] Phoenix 38
Slide 46: Appendix 2: Movement in assets under administration
Appendix 2: Movement in assets under administration £10.2bn £8.0bn £500 £(1.7)bn Opennewbusiness £3.1bn Heritage run-off £(4.6)bn Gross inflows Gross outflows Market movements end other HB Heritege run-off Ml Open new business 0 run-F business tothe Retirement Solitons segment within Open new busine
Slide 47: Appendix 3: Open new business segments movement in AUA
Appendix 3: Open new business segments movement in assets under administration Retirement Solutions news = Gross inflows ~new Gross inflows | Netflows existing | OF £2.0bn Gross outflows et Market movements yeeen | ext | 2 opening ALA has been restated to wehect the reso ail Phoenix Pensions and Sav
Slide 48: Appendix 4: Group cash flow analysis
Appendix 4: Group cash flow analysis Cash and cash equivalents at 1 January £503m = * Strong ongoing cash generation of £898m in the period funds our ongoing Netcash receipts from operating companies"? £898m uses of cash Uses of cash: + Non-operating net cash inflows of £178m (HY 2022: £165m net cas
Slide 49: Appendix 5: Change in Life Company Free Surplus
Appendix 5: Change in Life Company Free Surplus eo Oe £170 Free surplus Ne E Other Free surplus eset FY22 e eset HY232
Slide 50: Appendix 6: PGH Solvency II surplus and coverage ratios
Appendix 6: Estimated PGH Solvency II Surplus and coverage ratios PGH Solvency II Regulatory Coverage Ratio" PGH Shareholder Capital Coverage Ratio Hl Own Funds Ml Own Funds ll SCR FY22 HY23 PGH Solvency Il Own Funds £11.1bn £10.3bn Less: Unsupported With-Profit funds £(2.0)bn £(17)bn Adjustment for
Slide 51: Appendix 7: Capital coverage ratio sensitivities
Appendix 7: PGH Solvency II Shareholder Capital Coverage Ratio sensitivities Unrewarded market risks"? Base position Equities Long-term 20% fallin rates merkets —_8Obps rise in interest rates™® £3.9bn £(0.0bn £0.0bn — Impact on Solvency I Surplus Impact on sccr 180% 2% 3% ail Phoenix Long-term rates
Slide 52: Appendix 8: Diversification of illiquid asset portfolio
Appendix 8: Diversification of illiquid asset portfolio as at 30 June 2023 Structured with robust covenant protection, a * Broadregional spread with average LTV of 33% combination of loan-to-value and interest coverage * Securedon property assetswith average time to redemption Il years ratio + Avera
Slide 53: Appendix 9: ESG ratings and collaborations
Appendix 9: ESG ratings and collaborations Strong ESG ratings Ratings agency MSCI Sustainalytics CDP Dow Jones Sustainability Index Tortoise Responsibilityl0O Index ISSESG corporate rating al Phoenix FY22 19.8/ low risk 84" percentile 2 HY23 19.9/ low risk 84" percentile 12" C prime Collaborations a
Slide 54: Appendix 10: 2023 sustainability targets
Appendix 10: 2023 sustainability targets ESG Theme: Planet By transitioning our business to net zeroand nature positive, we aimto deliver better outcomes for our customersand stakeholdersand play our partin tackling the climate and nature emergency Key 2023targets Achieved to date: ~ Published our c
Slide 55: Appendix 11: Footnotes
Appendix 11: Footnotes 1. 30 June 2023 Solvency Il capital position is an estimated position and reflects a dynamic recalculation of transitionals for the Group's Life companies and recognition of the foreseeable 2023 interim shareholder dividend of £260 million. Had the dynamic recalculation not be
Slide 56: Appendix 11: Footnotes cont.
Appendix 11: Footnotes cont. 13. Restated comparative to reflect adoption of IFRS 17 14, Scenario assumes stress occurs on 1 July 2023 and that there is no market recovery. As part of the Group's internal risk management processes, the Own Funds and regulatory SCR are regularly tested against a numb
Slide 57: Legal disclaimer
Legal disclaimer All information in this presentation is unaudited. This presentation in relation to Phoenix Group Holdings ple and its subsidiaries (the ‘Group contains, and the Group may make other statements (verbal or otherwise) containing, forward- looking statements and other financial and/or
Phoenix Group Holdings — H1 2023 Earnings Presentation on 6ix