Standard Life Plc · LSE:SDLF
Standard Life — FY2008 Earnings Presentation
64 slides from Standard Life's earnings presentation, Mar 12, 2009
Slide 1: Standard Life Preliminary Results 2008
Standard Life Preliminary Results 2008 12 March 2009
Slide 2: Disclaimer
Disclaimer This presentation may contain certain “forward-looking statements” with respect to certain of Standard Life's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words “believes”,
Slide 3: What we will be covering
What we will be covering Group Overview Sir Sandy Crombie Financial Highlights David Nish Delivering value from an asset managing business Sir Sandy Crombie Questions Sir Sandy Crombie, David Nish and Keith Skeoch 3
Slide 4: Group Overview
Standard Life Preliminary Results 2008 Group Overview Sir Sandy Crombie
Slide 5: A distinctive approach to delivering value
A distinctive approach to delivering value An asset managing business building valuable customer relationships with leading service and compelling propositions • Creating capital efficient innovative products • Opening new routes to markets • Leveraging investment management expertise and performanc
Slide 6: Standard Life – strategy delivered
Standard Life – strategy delivered • Shareholder risks reduced or hedged • FGD surplus relatively robust to equity markets • New money flows resilient through the cycle • Growth driven by consolidating assets more than discretionary retail flows • Payback periods short with good IRRs - a ‘capital li
Slide 7: Financial Highlights
Standard Life Preliminary Results 2008 Financial Highlights David Nish
Slide 8: Financial highlights
Financial highlights 2008 2007 Assets under administration £156.8bn £169.0bn Life and pensions net flows1 £2.4bn £2.8bn Asset management third party net flows2 £3.8bn £5.3bn New business IRR 16% 19% Embedded value operating profit before tax £933m £881m Return on embedded value (RoEV) 10.9% 11.5% IF
Slide 9: Movement in assets under administration
Movement in assets under administration £3.8bn £(2.2)bn £0.6bn £(1.6)bn £(14.6)bn £0.3bn £1.5bn £169.0bn £156.8bn Opening UK net Canada Europe Bank Standard Life Consolidation Market / Closing AUA flows net flows net flows net flows Investments adjustments other AUA third party movements net flows R
Slide 10: Delivering a 'capital lite' strategy
Delivering a ‘capital lite’ strategy New Business Strain % 18 5.0% Europe 16 4.5% Canada 14 4.0% UK 3.5% 12 PVNBP £bn 3.0% 10 2.5% 8 2.0% 6 1.5% 4 1.0% 2 0.5% 0 0.0% 2005 2006 2007 2008 NBS is calculated on a post tax basis. New business strain margin for 2005, 2006 and 2007 have not been restated t
Slide 11: Growing returns – capital lite products
Growing returns – capital lite products 2008 2007 Discounted PVNBP IRR NBC NBC Payback margin % years % £m £m Individual pensions 16% 8 1.3% 56 123 Group pensions 13% 12 2.1% 55 60 Institutional pensions >40% <3 1.1% 20 17 Savings and investments 8% 24 0.2% 6 34 Annuities Infinite Immediate 15.8% 74
Slide 12: Back book management
Back book management FY 2008 FY 2007 HWPF UK Canada Europe TVOG Total Total £m £m £m £m £m £m Lapses (17) (25) 3 - (39) (249) Mortality and morbidity 49 4 2 - 55 (95) Tax 38 38 - - 76 56 Deferred Annuities 96 - - - 96 191 UK annuity reassurance 96 - 12 11 119 - Pension Sterling Fund (108) - - - (108
Slide 13: Return on embedded value (RoEV)
Return on embedded value (RoEV) 2008 RoEV 10.9% 2007 RoEV 11.5% 2008 Core 3.1% 4.8% 0.1% 8.0% 2007 Core 4.5% 5.2% 0.5% 10.2% 2008 Efficiency 0.8% 2007 Efficiency 1.5% 2008 Back book management 2.1% 2007 Back book management (0.2)% NBC Expected return & development expenses Non life RoEV resilient in
Slide 14: IFRS profits impacted by significant market volatility
Normalised FY 2007 underlying profit 476 Decreased management charges (38) New business development (23) Asset provisions (32) Reduction in corporate 7 costs 3 Other Normalised FY 2008 IFRS underlying profits underlying profit (excl. 393 Canada volatility) Impact of market volatility on Canada surpl
Slide 15: Capital and cash generation
Capital and cash generation FY 2008 FY 2007 £m £m New business strain (224) (225) Capital and cash generation from existing business 546 549 Covered business capital and cash generation from new business and expected return 322 324 Covered business development expenses (27) (16) Investments, banking
Slide 16: Capital and cash generation
Capital and cash generation Free Required Net PVIF Group Surplus Capital Worth EEV £m £m £m £m £m 31 December 2007 2,204 680 2,884 3,327 6,211 Adjustment to opening EEV - - - 32 32 Operating capital and cash generation 377 46 423 - 423 Non operating capital and cash generation (131) 44 (87) - (87) P
Slide 17: Maturity profile of PVIF
Maturity profile of PVIF Cumulative proportion of existing business PVIF converting into cash 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1-5 6-10 10+ Years Half of PVIF converts to cash within the next 5 years 17
Slide 18: Analysis of EEV balance sheet
Analysis of EEV balance sheet £m % Covered Business Net Worth 2,079 Net Worth Non-covered Business Net Assets 1,035 Intangibles 78 Total 3,192 51% VIF Savings Business PVIF1 3,045 UK & Europe Annuity PVIF2 209 Canada Annuity PVIF3 347 TVOG (257) Cost of Capital (292) Total VIF 3,053 49% Total EEV 6,
Slide 19: Market Consistent Embedded Value (MCEV)
Market Consistent Embedded Value (MCEV) EEV Approach MCEV Requirement Impact on moving to MCEV Corporate Head office costs not Need to allocate covered Will reduce starting MCEV due Centre Costs capitalised business appropriately to capitalisation of part of Head Office Costs. Should already be allo
Slide 20: Asset exposures
Asset exposures Policyholder Policyholder Minority As at 31 December 2008 Shareholder Total Participating Unit Linked Interests £m % £m £m £m £m Investment property 856 3 3,344 3,186 352 7,738 Equity securities 413 2 7,806 30,452 1,078 39,749 Debt securities 8,272 31 28,880 13,442 373 50,967 Loans a
Slide 21: Credit risk allowance for corporate bonds
Credit risk allowance for corporate bonds UK and Europe annuities • £1.5bn of bonds, comprising £0.8bn of government and government backed bonds and corporate bonds of £0.7bn used to back £1.5bn of annuity liabilities • Weighted average default assumption into perpetuity for corporate bonds increase
Slide 22: Standard Life Bank
Standard Life Bank • Standard Life Bank generated net retail inflows of £2.0bn (2007: net outflow £0.5bn): – Mortgages under management £9.7bn (31 December 2007: £11.3bn) – Savings balances £5.0bn (31 December 2007: £4.6bn) • Asset quality remains good with an arrears rate of 0.40%, which is less th
Slide 23: Credit exposures
Credit exposures As at 31 December 2008 Shareholder Policyholder Policyholder Third Total Unit linked Participating Party £m £m £m £m £m US sub-prime RMBS - - - - - US Alt-A - - - - - CDO/CSO/CLO1 - - 6 - 6 Wrapped credit 47 49 204 83 383 Direct monoline - - - - - SIVs2 36 - - - 36 Total 83 49 210 8
Slide 24: Heritage With Profits Fund (HWPF) - Estate
Heritage With Profits Fund (HWPF) - Estate Movement during 2008 • HWPF Estate of £0.5bn at December 2008 (2007: £1.5bn) • £0.7bn reduction due to the transfer of corporate bonds from backing annuities into asset shares and further spread widening • Value of guarantees in Estate assumes no liquidity
Slide 25: HWPF Time Value of Options and Guarantees (TVOG)
HWPF Time Value of Options and Guarantees (TVOG) • The TVOG measures the risk to the transfers from the HWPF to shareholders fully reflecting the current size of the Estate and the risk of potential future shortfalls • TVOG of £220m at end of 2008 fully reflects market conditions at that date • Esti
Slide 26: Current FGD surplus broadly unchanged from year end
Current FGD surplus broadly unchanged from year end FGD Surplus after allowing for the final dividend 31 December 2007 31 December 2008 Est’d Current Position £3.4bn £3.3bn £3.2bn Sensitivity to equity market falls1 Sensitivity to yields1 FGD Surplus 150bps rise in yields Fall in equities £2.5bn aft
Slide 27: Growing the dividend
Growing the dividend • Final dividend of 7.70p • Total dividend for the year of 11.77p • Growth in full year dividend of 2.3% • Dividend well covered by core capital and cash generation • Proposed replacement of DRIP with Scrip • We will continue to apply our existing progressive dividend policy tak
Slide 28: Financial summary
Financial summary • Good net flows across the Group • ‘Capital lite’ and cash generative with good IRRs • Increased embedded value operating profit benefiting from our active back book management • Low shareholder asset exposures with conservative default assumptions • IFRS profits impacted by signi
Slide 29: Delivering value from an asset managing business
Standard Life Preliminary Results 2008 Delivering value from an asset managing business Sir Sandy Crombie Highly Sensitive - Not to be copied, forwarded or disclosed beyond authorised individuals
Slide 30: Our transition to a 'capital lite' business model
Our transition to a ‘capital lite’ business model Capital Heavy Capital Lite Capital Lite Capital Lite Cash Consuming Cash Consuming Cash Funded Cash Generating 30
Slide 31: UK SIPP leadership
UK SIPP leadership Individual SIPP customer numbers 4,900 65,900 • Net flows into SIPP of £2.5bn 3,500 C AG R 4,900 dominated by pension consolidation 93% 5,700 46,900 • SIPP FUA increased by 13% to £8.7bn during 2008 despite impact of reduced asset values 25,200 9,100 31 Dec 31 Dec 31 Dec Q1 Q2 Q3
Slide 32: SIPP - enhancing the proposition
SIPP - enhancing the proposition A programme of enhancements in 2008 to build further on our market leading proposition: • Ability to accept protected rights monies since 1 October 2008 Protected Rights • Business volumes in line with expectations • 49% of new customers have invested Protected Right
Slide 33: UK Wrap leadership
UK Wrap leadership • Continued controlled roll out to advisers and strategic deals with major distribution Wrap funds under administration groups • The only platform rated ‘eee’ by FTRC/Money Marketing - 3 years in a row 2 • Number of committed adviser firms doubled 1.8 1.8 1.6 in 2008 1.6 GR 1.5 %
Slide 34: UK Corporate Pensions leadership
UK Corporate Pensions leadership • Market-leading proposition • Net inflows during 2008 of £1.5bn FUM per customer facing staff member (2007: £1.2bn) 45 • Efficiency through scalability se 40 c rea - £13.8bn FUM at December 2008 %i n 35 249 • The corporate arena shows a continued 30 trend towards: 2
Slide 35: UK Corporate Pensions - enhancing the proposition
UK Corporate Pensions - enhancing the proposition • Highly regarded by independent research (Greenwich) Market Leading • 'Best Group Pension Provider‘ – Corporate Adviser Awards 2009 Position • Growth in FTSE 100 relationships (over 50) Distribution • Specialist support to top segment of Consultants
Slide 36: Canada – institutional franchise driving strong new business metrics
Canada – institutional franchise driving strong new business metrics Canada Corporate Pensions assets under administration • 23% increase in sales1,2 14.0 GR CA • Significant increase in net inflows 12.0 11% 11.8 11.0 10.5 • Embedded value operating profit up 10%2 10.0 9.3 Total AUA • IRR of 17% 7.8
Slide 37: Asia-Pacific - potential from growing markets
Asia-Pacific - potential from growing markets India - HDFC SL • Driving growth in a challenging market through increase Asia-Pacific - APE in financial consultants to 202,000 (FY 2007: 132,000) • Good growth in customer numbers 140 • Launch of first healthcare products in 2008 and further Hong Kong
Slide 38: Standard Life Investments - strong revenue growth
Standard Life Investments - strong revenue growth Third Party assets under management Third Party Revenues 60 180 R GR AG 160 % CA 50 C 31 24 % 140 40 120 £bn 100 £m 30 80 20 60 40 10 20 0 0 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008 • Third Party mandates have increased to 37% • Th
Slide 39: Standard Life Investments - a resilient asset management business
Standard Life Investments - a resilient asset management business Institutional business Split of total Third Party FUM • Increasing popularity of fixed income and absolute return products Retail business • Standard Life Investments well positioned due to breadth 21% of offering and skills: • Fixed
Slide 40: Investing for future growth
Investing for future growth Investing in customer solutions • Innovative Corporate SIPP • Development of wider corporate benefit propositions • Development of Wrap proposition • Canadian segregated funds enhancements • Strengthening our international savings propositions Investing to drive tomorrow’
Slide 41: Achievement of efficiency targets
Achievement of efficiency targets £226m Additional cost savings 150 £151m £146m Reduction in L&P costs 135 Reduction in corporate costs Efficiency savings (£m) 120 105 90 £75m 75 60 45 30 15 0 2007 2009 Original 2008 Actual 2010 New Actuals target target Cumulative efficiency savings from 2006 Effic
Slide 42: Driving efficiency – new target set
Driving efficiency – new target set The next phase of the Continuous Improvement Programme Target to achieve a further £75m of annualised efficiency savings by the end of 2010 Restructuring of Distribution division will contribute towards this new target Future actions: • Extending our focus on proc
Slide 43: Increasing shareholder value is our objective
Increasing shareholder value is our objective Delivery Increased Efficiency shareholder value Opportunity A solid business model in the face of challenging markets 43
Slide 44: Questions
Standard Life Preliminary Results 2008 Questions Sir Sandy Crombie, David Nish and Keith Skeoch Highly Sensitive - Not to be copied, forwarded or disclosed beyond authorised individuals
Slide 45: Appendix
Appendix Highly Sensitive - Not to be copied, forwarded or disclosed beyond authorised individuals
Slide 46: Components of Standard Life value
Components of Standard Life value Illustrative key components in excess of EEV (not to scale) Standard Life EEV New markets Asset Cost efficiency New Business Value to Standard management Life Shareholders 286p per share India Value in Efficiency SIPP as at China excess of programmes Wrap 31 Dec 200
Slide 47: Net flow trends
Net flow trends 3,000 2,769 2,440 2007 2,500 2008 2,000 1,661 1,527 1,500 1,023 £m 1,000 616 548 620 500 340 (502) (663) 39 0 (500) UK Pensions UK UK Savings Europe Canada Total (1,000) (excl Inst Institutional & Pens) Pensions Investments Resilient net inflows in difficult markets 47
Slide 48: New business sales
New business sales £16.5bn £15.7bn 18,000 £14.6bn £266m 16,000 £495m £1,179m £206m £1,016m 14,000 £866m £1,654m Asia Pacific £2,240m £2,091m 12,000 Europe Total PVNBP £m Canada 10,000 UK 8,000 £13,440m 6,000 £11,436m £11,928m 4,000 2,000 0 2006 2007 2008 2008 figures are different to those reported
Slide 49: Group EEV operating profit
Group EEV operating profit FY 2008 FY 2007 Asia- HWPF Non UK Canada Europe Pacific TVOG Covered Total Total £m £m £m £m £m £m £m £m Contribution from new business 212 34 18 - - - 264 345 Expected return on existing business 290 109 32 - - - 431 401 Return on free surplus 33 4 3 (35) - - 5 16 Core de
Slide 50: Group EEV profit
Group EEV profit FY 2008 FY 2007 £m £m EEV operating profit before tax 933 881 Non-operating items Long-term investment return and tax variances (849) (17) Effect of economic assumption changes 48 27 Volatility arising on different asset and liability valuation bases (109) (39) Restructuring and cor
Slide 51: Embedded value
Embedded value Closing EEV 31 Dec 2007 £6,211m Opening adjustment £32m New Business £264m Expected Return £436m Inforce Movements £259m Development expenses £(42)m Non Life operating units £66m Corporate costs £(50)m Tax and non operating £(674)m Dividends paid £(257)m Closing EEV 31 Dec 2008 £6,245
Slide 52: IFRS normalised and underlying profit
IFRS normalised and underlying profit 2008 2007 £m £m Life and pensions UK 156 122 Canada (73) 205 Europe 65 61 Other life (35) (12) Total life and pensions 113 376 Investment management 93 83 Banking 26 32 Healthcare 11 13 Total non-life excluding corporate centre costs 130 128 Group corporate cent
Slide 53: IFRS total profit
IFRS total profit 2008 2007 £m £m IFRS underlying profit before tax 154 714 (Loss)/profit attributable to minority interest (83) 111 Underlying profit before tax attributable to equity holders and adjustments 71 825 Adjusted for the following items: Volatility arising on different asset and liabilit
Slide 54: UK SIPP leadership
UK SIPP leadership SIPP funds under administration 10,000 9,000 £8.7bn 8,000 £7.7bn Other Investments 1,739 Non- Deposit Accounts 7,000 1,332 Insured Non - 703 Insured Funds SIPP Bank Account 484 56% 6,000 Funds 603 42% 869 Collectives – Funds Network £m 5,000 834 656 Collectives – Standard Life £4.
Slide 55: Investment performance
Investment performance Active Investment Performance - by Product Group 1 year at 31 December 2008 3 years 0 5 years 10 years 25 % Rank 50 75 100 Weighted With Profits Mutual Unit-Linked Unit-Linked Corporate SLPF Irish & German M.W.A Third Average Active Funds Life Pensions Ex Group Life Party Asse
Slide 56: Standard Life Investments
Standard Life Investments Third Party assets under management £8.9bn £(5.5)bn £(5.6)bn £47.7bn £45.5bn Third Party AUM at Inflows Outflows Market & Other Third Party AUM at 31 December 2007 movements 31 December 2008 Third Party AUM resilient in the face of substantial market falls 56
Slide 57: Financial Groups Directive Surplus
Financial Groups Directive Surplus Dec-08 Jun-08 Dec-07 £bn £bn £bn Shareholders capital resources 2.6 2.6 2.9 Capital resources arising from subordinated debt 2.2 2.0 1.9 SLAL HWPF 1.7 2.1 4.4 FGD Group capital resources 6.5 6.7 9.2 FGD Group capital resources requirement (3.0) (3.2) (5.6) FGD surp
Slide 58: FGD – sources of surplus
FGD – sources of surplus 7.0 £2.0bn £(1.3)bn 6.0 5.0 £(2.2)bn £3.0bn 4.0 £0.8bn £(0.3)bn £3.5bn £0.5bn 3.0 £2.5bn 2.0 £1.0bn 1.0 0.0 Core Capital Held Subordinated Restricted Capital Surplus in Canada Standard Life plc Consolidation Surplus Tier 1 in HWPF Debt Assets Require Standard Life and other
Slide 59: Exposure to assets – debt securities
Exposure to assets – debt securities Exposure to debt securities Policyholder Policyholder Minority 1 As at 31 December 2008 Shareholder Participating Unit Linked Interests Total £m £m £m £m £m Government 3,682 18,990 6,165 144 28,981 Corporate - financial institutions 2,331 6,870 5,432 211 14,844 C
Slide 60: Asset backed securities – total
Asset backed securities – total Exposure by type and credit rating As at 31 December 2008 ABS Type AAA AA A BBB BB B Not Rated Total £m £m £m £m £m £m £m £m Total ABCP - - - - - - - - Auto ABS 26 - - - - - - 26 CMBS 1,003 355 394 316 - 1 141 2,210 Credit Card ABS 331 - - - - - - 331 Other ABS 77 - -
Slide 61: Asset backed securities – shareholder
Asset backed securities – shareholder Exposure by type and credit rating As at 31 December 2008 ABS Type AAA AA A BBB BB B Not Rated Total £m £m £m £m £m £m £m £m Shareholder ABCP - - - - - - - - Auto ABS 17 - - - - - - 17 CMBS 314 15 9 13 - - 2 353 Credit Card ABS 195 - - - - - - 195 Other ABS 39 -
Slide 62: Asset backed securities – policyholder (unit linked)
Asset backed securities – policyholder (unit linked) Exposure by type and credit rating As at 31 December 2008 ABS Type AAA AA A BBB BB BNot Rated Total £m £m £m £m £m £m £m £m Policyholder - Unit Linked ABCP - - - - - - - - Auto ABS 9 - - - - - - 9 CMBS 333 64 81 77 - - 4 559 Credit Card ABS 67 - -
Slide 63: Asset backed securities – policyholder (participating)
Asset backed securities – policyholder (participating) Exposure by type and credit rating As at 31 December 2008 ABS Type AAA AA A BBB BB B Not Rated Total £m £m £m £m £m £m £m £m Policyholder - Participating ABCP - - - - - - - - Auto ABS - - - - - - - - CMBS 212 172 174 93 - - 128 779 Credit Card A
Slide 64: Asset backed securities – third party
Asset backed securities – third party Exposure by type and credit rating As at 31 December 2008 ABS Type AAA AA A BBB BB B Not Rated Total £m £m £m £m £m £m £m £m Third Party ABCP - - - - - - - - Auto ABS - - - - - - - - CMBS 144 104 130 133 - 1 7 519 Credit Card ABS 17 - - - - - - 17 Other ABS 18 -