Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group — H1 2022 Earnings Presentation
61 slides from Standard Life's earnings presentation, Aug 15, 2022
Slide 1: Half year 2022 results
Phoenix Half year 2022 results 15 August 2022 a>
Slide 2: Welcome
Good morning everybody, and welcome to Phoenix Group’s 2022 half year results presentation. It is great to be presenting here, at our new London head office building, for the first time. Thank you for coming, and welcome to those of you joining us on our live webcast. 2
Slide 3: Fantastic first half despite tough economic backdrop
Phoenix has had a fantastic first half, despite the tough economic backdrop. We have, once again, delivered a record set of results, across our financial framework of cash, resilience and growth. This was underpinned by the strong progress we have made across our wider strategic priorities, which en
Slide 4: Financial headlines
So, starting with the financials. Rakesh will cover this in more detail shortly, but in terms of the headlines… We have delivered £950 million of cash generation in the first six months, and are now on track to be at the top-end of our target range for the year. Our balance sheet remains both strong
Slide 5: Progress across five strategic priorities
As you can see from this slide, we have continued to make excellent progress across our five strategic priorities, as we deliver on our purpose and strategy. The strength of this delivery is down to the strong talent we have in our business. Engagement is high, as we prioritise our culture, and supp
Slide 6: Migration, synergies and growth progress
is our first major migration off the legacy Standard Life mainframe. A great outcome for customers, and a key strategic milestone. And we have also delivered a further £15 million per annum of cost synergies from ReAssure, which means that we have now exceeded our revised synergy target, with nearly
Slide 7: Sun Life of Canada UK acquisition
However, probably the biggest achievement in the first half, has been the announcement of our first ever cash funded acquisition. Which I am confident will allow us to demonstrate the significant value for shareholders, available from smaller-sized, cash funded M&A. We very much look forward to welc
Slide 8: Dividend trajectory
So, what does our success in the first half mean for our dividend trajectory? As you can see, we have a consistent track record of dividend growth over the past 10 years, having delivered a compound annual growth rate of 4%, primarily driven by M&A. Last year, as you know, we delivered our first eve
Slide 9: Financial results key takeaways
Thank you Andy and good morning everybody. There are three key things I want you to take away from our financial results today. Firstly, we continue to deliver dependable cash generation, which underpins our reliable dividend. Secondly, we remain as resilient as ever and are well hedged against the
Slide 10: Strong financial performance in first half
As Andy said, Phoenix has delivered a strong financial performance in the first half of 2022. We delivered cash generation of £950 million in the period, maintained our strong Solvency balance sheet, and more than doubled our new business long-term cash generation to £430 million. Our leverage ratio
Slide 11: Cash generation targets
Starting first with cash. Phoenix is unique in its ability to deliver dependable cash generation over the very long term. This enables us to set very clear one-year and three-year targets, and provide guidance for lifetime cash generation. I want to talk to you about each one of those in turn. Start
Slide 12: Free cash flow yield
We are often asked by investors who are not insurance specialists, how they can compare the performance of Phoenix, against companies in the wider market. We primarily run our business to generate cash, and this is easily comparable. Looking at the £4.0 billion of cash we expect to generate over the
Slide 13: Sources and uses of cash generation
This slide sets out the expected sources and uses of cash generation over the next three years as at 31 December 2021. And shows that we expect to generate £1.7 billion of surplus cash. We also have the capacity to raise up to a further £1 billion in debt, while remaining within our leverage target
Slide 14: Lifetime cash generation guidance
Finally on cash, we have provided guidance for lifetime cash generation of £17 billion. After servicing and redeeming all outstanding debt, and deducting committed integration costs, we expect £11.8 billion of long-term free cash available to shareholders. And this long-term free cash number is prud
Slide 15: Long-term free cash resilience
generation Which means there is no material impact on our long-term free cash from the key market risks, as you can see on the right hand side of this slide. We are therefore well positioned to continue delivering for our shareholders in this challenging economic environment. 13
Slide 16: Solvency II capital position
Our Solvency II capital position remains strong, with a resilient surplus of £4.7 billion, which, as ever, reflects the accrual of our interim dividend. Our strong capital position enabled us to repay the £450 million Tier 3 bond that matured in July, which was deducted from our June solvency positi
Slide 17: Shareholder capital coverage ratio
broadly stable. Meanwhile, our shareholder capital coverage ratio has increased to 186% And the recently announced acquisition of Sun Life of Canada UK is expected to reduce this to 179%, on a pro forma basis. With our Solvency shareholder ratio at the top end of our target range of 140-to- 180%, we
Slide 18: Balance sheet resilience and sensitivities
As I have explained, delivering resilience in our balance sheet is fundamental to Phoenix. We therefore have a low appetite for retaining equity, interest rate, inflation and currency risks, which we see as unrewarded, and hedge. This translates into the low sensitivities presented here. We also man
Slide 19: Inflation exposure hedged
Given inflation is so topical at the moment, I thought it was worth reiterating that we have no material exposure to inflation. Inflation emerges in two principal areas within our business, both of which we have hedged. Firstly, we have the inflation linked annuities, which are hedged with index-lin
Slide 20: Resilience versus UK peers
As I have shown many times before, as a consequence of our comprehensive hedging approach, we continue to be far more resilient to the major market risks than our UK peers. This low sensitivity is especially important during times of market volatility, as we have at present. And it therefore remains
Slide 21: Assets under management and credit portfolio
We manage around £270 billion of assets on behalf of our customers and shareholders. Our assets reduced in the period by around £38 billion, due to the significant market movements experienced by all. However, these market movements have a limited impact on the fees we earn, as we hedge the annual m
Slide 22: Credit portfolio sector positioning
We also remain conservative in the sector positioning of our credit portfolio, and have sought to limit our exposure to highly cyclical sectors by further rotating out of these during the first half. As a result, we have only £1.1 billion, or 3%, of our £34 billion credit portfolio exposed to cyclic
Slide 23: Management actions
Our ability to deliver value-accretive management actions is a key differentiator for Phoenix, and optimising our inforce business is one of our five key strategic priorities. We continue to demonstrate our capability here, with over £400 million of management actions delivered in the first six mont
Slide 24: New business long-term cash generation
Moving now to Growth and it is great to see that our investment here is paying off. I am delighted that we have more than doubled new business long-term cash generation to £430 million, on a like-for-like basis. Retirement Solutions contributed £282 million in the first half, delivering more than tr
Slide 25: Bulk purchase annuity momentum
2021 was the year that Phoenix, through our newly acquired Standard Life brand, firmly established itself as a key player in the BPA market. We have built on this foundation with a strong start to 2022, having completed £1.6 billion of premiums across 6 external transactions. Our capital strain has
Slide 26: Fee-based net flows and scheme wins
I was particularly pleased to see the strong turnaround in net flows from our capital- light fee-based business in the first half. We delivered a net inflow of £1.4 billion in the period, compared to a £0.5 billion outflow in the same period last year. An improvement of £1.9bn! This was driven by ou
Slide 27: IFRS results
Turning to our IFRS results. We delivered operating profit of £507 million in the first half of 2022, marginally down on the prior year. This included increased BPA new business profits in our Open division, offset by a reduction in Heritage, primarily due to a lower expected return as the business
Slide 28: Financial conclusion
So, to conclude. We delivered strong financial results in the first half of 2022, across our financial framework of cash, resilience and growth. And we are on track to deliver across all of our targets for 2022. This includes delivering at the top end of the 2022 cash generation target range of £1.3
Slide 29: Outlook
Outlook Andy Briggs Group Chief Executive Officer al Phoenix 26
Slide 30: Purpose-led organisation
Thanks Rakesh As I have said before, I passionately believe that the best businesses have a core social purpose, which is why ours is ‘helping people secure a life of possibilities’. Helping a broad range of people in the UK, to journey to and through retirement, and enjoy a better later life. As a
Slide 31: Four major UK retirement market trends
Standing in the shoes of our customers, there are a number of sources of retirement income available to them. And these underpin the four major trends in the UK long-term savings and retirement market, which offer us multiple growth opportunities. The first is the huge stock of legacy pensions and s
Slide 32: Market growth and economic environment impact
While in the individual pensions and savings market, which is another £40 billion of flows, we have been working on developing innovative retirement income solutions. The right hand side of this slide sets out the impact, on these market growth trends, of the current economic environment. We believe
Slide 33: Clear and differentiated strategy
We have a clear and differentiated strategy, which creates shareholder value, through leveraging all four of the major market trends I have just covered. It is simpler and more focused than our peers. Heritage is the bedrock of our business, which delivers high levels of predictable cash, that cover
Slide 34: Capital strain and TCS cost advantage
Where we are already at a 3.8% capital strain, on a more comparable, pre capital management policy basis. While our strategic partnership with TCS, provides us with a market-leading, cost- per-policy, administration platform, that will give us a meaningful cost advantage, for our fee-based businesse
Slide 35: Organic growth outlook
2021 was a pivotal year for Phoenix, as we delivered organic growth from our Open business, which more than offset the Heritage run-off, for the first time. Which we accelerated through the acquisition of the Standard Life brand, and the investment into our Standard Life business. We are now confide
Slide 36: Capital Markets Day
We have scheduled a Capital Markets Day on 6th December, where we plan to do a deep dive into our Open business. 30
Slide 37: M&A and dividend communication
M&A remains a core part of our ongoing growth strategy, both large and small, with the remaining £470 billion of UK Heritage assets potentially available over time. I continue to have “cups of tea” with my fellow insurance CEOs, and the message from the majority of them remains very much one of, “wh
Slide 38: Summary
In summary. Phoenix is unique in the insurance sector. With the cash from our in-force business funding our attractive dividend, over the very long term. While our business is highly resilient, owing to our strong capital position, and our hedging, which protects both the capital position, and our l
Slide 39: Questions
So, we will start with questions from the audience in the room. If you can raise your hand if you have a question, and we will direct one of our roaming microphones to you. Please can you start by introducing yourself and the institution you represent. For anyone dialled into the conference call, pl
Slide 40: Investor Relations activity and contacts
Investor Relations activity and contacts 25 August 26 August September-October 12 September 12 September 13-16 September 6 December ail Phoenix Ex-dividend date for 2022 Interim dividend Record date for 2022 Interim dividend Half year 2022 results investor roadshow Payment date for 2022 Interim divi
Slide 41: Appendices
Appendices 35
Slide 42: Appendices
Appendices al Phoenix 36
Slide 43: Appendix 1: Leverage ratios
Appendix 1: Leverage ratios Fitch leverage ratio 28% 28% 22% 22% FYI6 FYI? FYB FYI FY20 FY2i HY22 al Phoenix Leverage ratios Fitch basis'29 IFRS basis25 44% 44% Sllleverage!*9 31% 31% + IFRSleverage ratio classifies RT! as debt * Weestimate a funding capacity for inorganic growth as at HY22 of c£1.3
Slide 44: Appendix 2: Debt maturity profile
Appendix 2: Debt maturity profile as at 15 August 2022 MEE RTibond fll Tier2 bond fll Tier3 bond debt converted into GBP based onthe closing 30 June 2022ecchange ates al Phoenix
Slide 45: Appendix 3: Movement in assets under administration
Appendix 3: Movement in assets under administration £8.3bn £310.4bn “ £(38.5)bn Heritage £(49)bn Open £1.8bn Gross inflows Gross outfiows Market movements and other Tl Heritege MI Open The Corporate Trurtes Investment Plan products open to new business and hes therefore been transfered from the Heri
Slide 46: Appendix 4: Open business segments AUA movement
Appendix 4: Open business segments movement in assets under administration Retirement Solutions FY21AUA T= Gross inflows existing NZ2AUR Ea ail Phoenix Workplace Gross inf Reclassified cmp reclessificstion — am . aa = bl CS&I Europe Net flows of £01bn_ £10.76 Gross inflows |, Net Si tng | flowsot £0
Slide 47: Appendix 5: Breakdown of Open business segments
Appendix 5: Breakdown of Open business segments as at 30 June 2022 Assets under administration New business LTCG New business contribution Hl FetirementSolutions ll plece CSS! MM Europe fll SunLife ail Phoenix 4
Slide 48: Appendix 6: Change in Life Company Free Surplus
Appendix 6: Change in Life Company Free Surplus Free surplus as at FY2 generation Managementections New. Econo} business strain incl. BPA ail Phoenix £2.4bn
Slide 49: Appendix 7: PGH Solvency II surplus and coverage ratios
Appendix 7: Estimated PGH Solvency II surplus and coverage ratios PGH Sll coverage ratio” PGH Shareholder Capital Coverage Ratio Hl Own funds fll SCR FY21 HY22 PGH Solvency ll Own Funds £14.8n £12.4bn Less: Unsupported with-pr £(3.0)bn £(2 2)bn Adjustment for unsupported pension schemesand restricti
Slide 50: Appendix 8: Additional Solvency II disclosures
Appendix 8: Additional Solvency II disclosures Estimated HY22 SCR by risk type” HY22 PGH Own Funds by capital tier? £10.2bn Ml 9% of SCR p= | £5.5bn 1 50% of SCR Ml 127% of SCR PGH tiering of Own Funds PGH SCR Share of SIl Own Funds by capital tier £bn % HB Persistency Operational Tier 19 £7.0bn 68%
Slide 51: Appendix 9: Solvency II sensitivities
Appendix 9: PGH Solvency II Regulatory Capital Coverage Ratio sensitivities Unrewarded market risks Base position Equities Longterm Long-term 20% fallin rates rates markets 80bps risein _70bps fallin interest rates" interest rates" £4.7bn No impact £(0.0bn £0.1on —_—_— Impact on Solvency I surplus I
Slide 52: Appendix 10: H1 2022 operating profit drivers
Appendix 10: H1 2022 operating profit drivers Heritage Open Siete _— S36n SE 33.9p pershare” ng conta ster tax vied by the weighted average numberof ordinary shares nue curing the period al Phoenix 46
Slide 53: Appendix 11: Asset origination
Appendix 11: Asset origination as at 30 June 2022 2022 asset origination by type 2022 illiquid assets by type Key messages E485m of sustainable assets in H1 2022 (/) Utilised liquid credit spread widening to originate more liquid creditat strong yields in the first half and preserve illiquid capacit
Slide 54: Appendix 12: Diversification of illiquid asset portfolio
Appendix 12: Diversification of illiquid asset portfolio as at 30 June 2022 Infrastructure — project financedebt 9bn with BBB rat Equity F * Broadregional spreadwith average LTV of 31% + Securedon property assetswith average time to redemption Il years * Diversified portfolio with c.25% of exposures
Slide 55: Appendix 13: Credit quality by sector
Appendix 13: Credit quality by sector for shareholder debt portfolio Average credit rating by sector (HY22 vs FY21) Sector ERM £4.1bn 12% ee Consumer, cyclical £1.2bn 4% Industrials £1.2bn 4% e RealEstate £4.0bn 12% ee Consumer,non-cyciical £2.1bn 6% ee Tech andTelecoms £1.96 5% ee Utilities £2.3bn
Slide 56: Appendix 14: Integration synergies
Appendix 14: Integration synergies ReAssure Revised target % of revised target InH12022 Cumulative Capital synergies (net of costs) £5m £693m £600m 116% Cost synergies?" (per annum) £15m £42m £50m 85% £lim £39m £50m 78% Integration costs”? (net of tax) ail Phoenix 50
Slide 57: Appendix 15: ESG ratings and collaborations
Appendix 15: ESG ratings and collaborations ESG ratings Collaborations and Commitments Climate Ratings agency FY21 HY22 h Action 100+ MscI A A o Il 6 ce - «PRI Sustainalytics 20.0/ low risk 19.8/ low risk * \ F , M2 - ‘5 ‘ eS Va. PCAF ! a wo, gente Dow Jones Sustainabili . rae: TN ee Den Jonee Suna
Slide 58: Appendix 16: 2022 sustainability targets
Appendix 16: 2022 sustainability targets Investing in a sustainable future tracking established for listed equity andcredit wherewe exercise influenceand control making process Investing responsibly * Alignmentto the UK Stewardship Code in readiness forcertification in 2023 + 60%®origination of Sust
Slide 59: Appendix 17: Footnotes
Appendix 17: Footnotes 1. 30 June 2022 Solvency Il capital position is an estimated position and reflects a dynamic recalculation of transitionals for the Group's Life companies and the foreseeable interim dividend of £248m. Had the dynamic recalculation not been assumed, the Solvency ll surplus and
Slide 60: Appendix 17: Footnotes cont.
Appendix 17: Footnotes cont. 18. Credit stress varies by rating and term and is equivalent to an average 135bps spread widening. It assumes the impact of a dynamic recalculation of transitionals (subject to PRA approval) and makes no allowance for the cost of defaults/downgrades 14, Impact of an imm
Slide 61: Disclaimer
Disclaimer This presentation in relation to Phoenix Group Holdings plc 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 statistical data about the Group's current plans, goals,