Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — Investor Presentation (June 2010)
41 slides from Standard Life's investor presentation, June 2010
Slide 1: The specialist closed life business – Investor Presentation
“The specialist closed life business” Investor Presentation June 2010 1
Slide 2: Disclaimer
Disclaimer This presentation (and the information contained herein) is not for distribution in, and does not contain or constitute an offer of securities for sale, or solicitation of an offer to purchase securities, and is not an invitation to purchase, sell or otherwise engage in investment activit
Slide 3: The Phoenix team
The Phoenix team Ron Sandler ► Appointed Chairman in September 2009 (Chairman) ► Chairman of Northern Rock, Paternoster Ltd and Ironshore Inc ► Previously CEO of Lloyd’s of London, and COO of NatWest Group Jonathan Moss ► Became Finance Director of the Pearl (Group Chief Executive) businesses in 200
Slide 4: Agenda
Agenda 1. Overview 4 2. Investment case 10 3. Financials 19 4. Outlook 27 4
Slide 5: What is Phoenix today?
What is Phoenix today? ► Group MCEV of £1,827m ► Additional value from Ignis Asset Management and Management Services ► Group operating profit of £457m Life companies Management Services Ignis Asset Management ► Well seasoned portfolio of ► Support life operations - ► Top 20 UK asset manager closed
Slide 6: Key financials
Key financials (£m) 2009 2008 ► Q1 2010 update (1) Holding company cash inflows 716 n.a – Holding company cash MCEV 1,827 1,044 (2) inflows of £270m – Estimated IGD capital (3) IGD capital surplus £1.2bn £0.7bn surplus of £1.3bn IFRS operating profit (1) 457 n.a – Assets under management of £69bn Ig
Slide 7: Key components of value
Key components of value MCEV of £1,827m Not included in MCEV (£11.08 per share) (1) (3) (4) MCEV at 31 Dec 09 Ignis Asset Management - Management Services - Management actions Vesting annuities Present value of Present value of future profits (2) future profits (2) Note: Not to scale and not a compr
Slide 8: Listing summary – Expected key dates
Listing summary – Expected key dates Publication of Listing prospectus 4 June 2010 AGM circular distributed 4 June 2010 Management UK roadshow w/c 7 June 2010 AGM 23 June 2010 Move to Premium Listing on LSE 5 July 2010 Interim results 27 August 2010 8
Slide 9: Rationale for Premium LSE Listing
Rationale for Premium LSE Listing ► Increased liquidity ► Eligible for FTSE index inclusion ► Improves access to capital markets ► Elevates profile 9
Slide 10: Agenda
Agenda 1. Overview 4 2. Investment case 10 3. Financials 19 4. Outlook 27 10
Slide 11: A compelling investment case
A compelling investment case ► A simple and scalable business model ► Highly cash generative business supporting returns to shareholders ► A market leader in UK closed life fund run-off with significant value creation opportunity ► Track record and expertise in creating value through business integr
Slide 12: A simple and scalable business model
A simple and scalable business model… Phoenix Group Dividends Inflows UK Holding Company Outflows Corporate costs Pension scheme contributions Debt service and amortisation Cash inflows Life companies Management Services Ignis Asset Management £35m cashflow £660m cashflow £21m cashflow Note: Data pr
Slide 13: …supporting strong cash generation
…supporting strong cash generation £2.7bn Sources of targeted future cashflows 2010-14 VIF profits and unwind £1.1bn Release of capital £1.0bn £1.6bn Management actions £0.3bn Other (1) £0.3bn Target holding company cash inflows £2.7bn 2010 – 2014 2015 – 2019 (Targeted) (Targeted) Note: No managemen
Slide 14: The Phoenix model – creating value through financial management
The Phoenix model – creating value through financial management… Key principles Hypothetical Capital Requirements in a Fund Merger (1) ► Eliminate unrewarded risk and release capital to enable Reduction in requirement: £100m (20%) higher risk-adjusted returns Capital Capital requirement: requirement
Slide 15: …and continued focus on operational efficiency
…and continued focus on operational efficiency Rationalisation of outsourcers and Key principles renegotiation of contracts (1) ► Matching incurred costs to the group’s policy run-off profile Before Outsourcing After Outsourcing ► Improve commercial relationships with outsourcers ► Harmonisation and
Slide 16: Robust and simple basis for valuation
Robust and simple basis for valuation Embedded value Cashflow ► MCEV provides a robust starting point ► High visibility on cashflows over the long term – Publication of audited MCEV at 31 Dec 09 – No new business strain – Implemented methodology changes to better align – Regulatory capital released
Slide 17: The closed fund consolidation opportunity is supported by market dynamics
The closed fund consolidation opportunity is supported by prevailing market dynamics… ► Probable implementation from 2013 Solvency II ► Sector participants reviewing balance sheets and priorities ► Implementation from 2012 Basel 3 ► Banks restructuring insurance interests Sector recycling ► Refocusi
Slide 18: …ensuring a supply of attractive potential acquisition targets
…ensuring a supply of attractive potential acquisition targets The with profit opportunity ► Market dynamics that drive the consolidation opportunity will ► Increasingly a legacy product impact life fund operators in different ways ► WP new business just 8% of total UK new ► Phoenix would be able to
Slide 19: Agenda
Agenda 1. Overview 4 2. Investment case 10 3. Financials 19 4. Outlook 27 19
Slide 20: Key financials
Key financials (£m) 2009 2008 ► Q1 2010 update (1) Holding company cash inflows 716 n.a – Holding company cash MCEV 1,827 1,044 (2) inflows of £270m – Estimated IGD capital (3) IGD capital surplus £1.2bn £0.7bn surplus of £1.3bn IFRS operating profit (1) 457 n.a – Assets under management of £69bn Ig
Slide 21: Robust cash generation supports dividend capacity and debt repayments
Robust cash generation supports dividend capacity and debt repayments Normalised target 2010 target inflows 2010 target outflows debt servicing (2) £225m £27m (1) £33m (1) £102m (3) £400m – £27m £500m Target cash Target cash Corporate costs Pension Other Cash available to Normalised bank Tier 1 coup
Slide 22: Strong cash interest cover
Strong cash interest cover Holding Normalised Mandatory company cash interest amortisation ► Strong coverage for debt cost (1) (from 2011) (2) interest payments given Total Pearl bank debt £425m £25m p.a. cash inflows from operating businesses £102m Total Impala bank debt £2,260m £125m p.a. ► Predic
Slide 23: MCEV development in 2009
MCEV development in 2009 Narrowing credit spreads on corporate bonds. Favourable equity and yield movements Includes £142m Includes £130m from pre-restructuring management actions interest and £34m and £73m of longevity for 4 months post assumption restructuring harmonisation 23
Slide 24: 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 ► Using 31 December 2009 position as a base case, under the most onerous combined stress scenario
Slide 25: Track record and clear strategy for management actions
Track record and clear strategy for management actions Cashflow acceleration ► 2009 – 2010 target cashflow acceleration of £500m; achieved £275m in 2009 £275m £225m £115m ► 2009 – 2010 target EV accretion of £300m; achieved £155m in 2009 £160m ► Remaining EV accretion and cash flow acceleration targ
Slide 26: Ignis Asset Management
Ignis Asset Management Year to 31 December (£m) 2009 2008 Third party revenue 29 35 Life fund revenue 81 78 ► Ignis is included in the MCEV at IFRS net asset value of £39m Other income 1 3 ► Employs 530 staff in Glasgow and London Total revenues 111 116 ► Investment out-performance Staff costs (49)
Slide 27: Agenda
Agenda 1. Overview 4 2. Investment case 10 3. Financials 19 4. Outlook 27 27
Slide 28: Progress against milestones
Progress against milestones ► Fund mergers and continued value creation from management actions Achieved ► Agreement with Tier 1 noteholders ► New Board appointments Current ► Restructure of outstanding contingent rights focus ► Premium LSE Listing ► Repayment of 10% of bank facilities may permit re
Slide 29: Phoenix Group - a compelling investment case
Phoenix Group - a compelling investment case ► A simple and scalable business model – No upfront selling costs or new business strain – Regulatory capital released with run-off ► Highly cash generative business supporting returns to shareholders – Cash flow acceleration through management actions –
Slide 30: Appendix
I. Appendix
Slide 31: Asset mix of life companies
Asset mix of life companies 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 £19,239m Equity
Slide 32: Life company liability mix
Life company liability mix Policyholder liabilities at 31 December 2009 Life company With profits (%) Unit linked (%) Other non-profit (%) Total (£m) London Life 48 17 35 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 33: Life company solvency (Pillar 1)
Life company solvency (Pillar 1) Phoenix and Pearl Phoenix London 31 December 2009 (£m) Assurance London Life NPI Life 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 Note: Represents Pillar 1 solvency position Pearl
Slide 34: Economic capital
Economic capital ► Life businesses run under Solvency I. Capital requirements generally driven by Pillar 2 ICA plus an internally set additional buffer (currently 33% of ICA for PLL, our largest life company) ► Pillar 2 already an economic capital basis, directionally consistent with Solvency II ► N
Slide 35: MCEV sensitivities
MCEV sensitivities 2009 MCEV of covered business (£m) Base 4,731 1% decrease in risk-free rates 135 1% increase in risk-free rates (167) 10% decrease in equity/property market values (156) 100bps increase in credit spreads (1) (365) 25% increase in equity/property implied volatilities (19) 25% incre
Slide 36: 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 (34%) (27%) (18%)
Slide 37: Bank credit facilities
Bank credit facilities At 31 December 2009 £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
Slide 38: Contingent rights exchange is a pre-condition to Premium Listing
Contingent rights exchange is a pre-condition to Premium Listing ► Satisfies UKLA requirements – number of dilutive instruments (excluding employee incentive plans) reduced to below 20% of issued share capital ► Proposed terms of the exchange – Contingent rights converted into Ordinary shares on a 9
Slide 39: Capitalisation table
Capitalisation table At 31 May 2010 Post Premium Listing Shares in issue Ordinary shares 80,430,732 164,862,855 Class B shares 52,032,123 0 132,462,855 164,862,855 Ordinary share warrants Public warrants 8,169,868 8,169,868 Lenders (1) 5,000,000 5,000,000 Royal London (1) 12,360,000 12,360,000 25,52
Slide 40: Directors and executive management
Directors and executive management Board of Directors Ron Sandler Chairman, Non-Executive Director and Nomination Committee Chairman Jonathan Moss Group Chief Executive Officer Simon Smith Group Finance Director (to be replaced by Jonathan Yates) Alastair Lyons Senior Independent Non-Executive Direc
Slide 41: Summary of corporate structure
Summary of corporate structure Phoenix Group Holdings 100% Royal Opal Re £425m London Holding Holding £100m P-I-K Banks Companies Companies £75m Banks 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% Service Co (P
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