Half Year Results 27 August 2010
Agenda • Introduction - Ron Sandler, Chairman • Business review - Jonathan Moss, Group Chief Executive • Financial results - Jonathan Yates, Group Finance Director • Summary - Jonathan Moss • Q&A 2
Introduction Ron Sandler
Business review Jonathan Moss
A simple business model Phoenix Group Holdings Dividends UK Holding Companies Corporate costs Pension scheme contributions Debt service and amortisation £335m cash inflows Ignis Asset Management Life companies Management Services • £68.6bn AuM • IGD surplus £1.3bn • £22m operating profit • Services 6.5m policyholders • £326m cash to UK Holding • £9m cash to Holding • £7m operating profit Companies Companies Note: All amounts reflect HY 10 results 5
Objective - to be the consolidator of choice Key strategic goals Group priorities • • Maximise business performance & Simplify and optimise capital value structure • • Maintain a robust & scaleable Strong capital policies to ensure platform safe release of capital • • Efficient capital usage & cash Targets to increase EV and release accelerate cash inflows through management actions • Optimise asset management • Grow Ignis AuM • Satisfied policyholders • Good customer service and • Lead consolidation of closed life prompt payment of benefits sector • Explore complementary M&A opportunities Transparent reporting of performance against targets 6
Strong capital policies to ensure safe release of capital Illustrative life company capital run-off Free surplus in life companies (1) HY 10 FY 09 Free Capital Surplus Policy 0 £534m £408m Capital Policy 1 ICA 0 ICA 1 Cash release from life companies £155m HY 10 FY 09 £326m £660m • Free surplus at FY 09 funded HY 10 cash release • H2 10 cash release to be determined post 2010 capital policy review Achievements in HY 10 � £30m of accelerated cashflows from resolving legacy tax issues � On track to meet remaining £195m of £500m target for 2009/10 accelerated cashflows from management actions (set in July 2009) 7
Targets to increase EV through management actions £300m Achievements in HY 10 Remaining target H2 10 £29m � £116m of management actions achieved primarily from tax optimisation and resolving Achieved HY 10 legacy tax issues £116m On track to complete delivery of 2009/10 target of £300m of incremental EV Achieved FY 09 £155m • Back book management e.g. de-risking asset portfolios • Further resolution of legacy tax issues EV accretion • Fund restructuring synergies e.g. risk Group MCEV operating profit (net of tax) diversification and capital efficiency HY 10 FY 09 £216m £269m 8
AuM growth and building new business • AuM increased by £1.7bn (2.5%) £0.8bn £68.6bn £1.9bn £66.9bn £(2.7)bn £1.7bn • Strong growth in new business inflows • Life company run-off largely offset by market movements and net new business inflows AuM at Net life Market Net transfers Net new AuM at from 3 rd party 31 Dec 09 company business 30 Jun 10 movements run-off asset manager inflows • Positive investment performance despite volatile markets with 9 of the major 13 life funds beating benchmark in HY 10 Ignis IFRS operating profit HY 10 HY 09 FY 09 £22m £16m £34m 9
Transparent reporting of performance against targets • Projected cash inflows highly predictable Holding companies cash inflows • 5 year target of £2.7bn cash inflows £2.7bn – £335m achieved in HY 10 Other (1) £0.3bn – £400 to £500m target for BAU cash Management actions inflows (£305m in HY 10) £0.3bn – £225m management actions Release £1.6bn accelerating cash inflow in 2010 (£30m of capital in HY 10) £1.0bn – On track to meet 2009/10 cash acceleration targets (set in July 2009) Emergence • of surplus Performance to be tracked against targets £1.1bn • Link provided between IFRS profit, capital and cash flow 2010 - 2014 (targeted) 2015 - 2019 (targeted) Notes: Cash flows are undiscounted Only £75m of management actions included for 2011. No management actions assumed beyond 2011 (1) Includes VIF of Ignis and management services companies 10
Update on specific group milestones Achieved in HY 10 Ongoing � National Provident Life restructure • Fund mergers PALAL and PLL restructuring � Relocated majority of accounting, tax and • All remaining departments (largely actuarial) Relocation strategy/planning functions to Wythall to move to Wythall by Q1 2011 Phoenix � Completed pre-application process for Life • Submit QIS 5 results by end Oct for solo Solvency II internal model approval by FSA entities and end Nov for groups � Initial phase of outsourcer rationalisation • Migrate further policies onto new integrated Outsourcers nearing completion platform • Embed new MI focusing the investment � Strengthened management team Capability teams on out-performance Fund � £7bn of assets transferred to collectives • Ignis Transfer further £10bn in H2 10 rationalisation • Build 3 rd party Continue the build out of institutional and � £0.8bn of net new 3 rd party business business European distribution platforms � Reduced dilutive instruments to < 20% • Capital Discussions with lenders � Restructured Tier 1 bonds structure Corporate � Premium Listing on LSE on 5 July 2010 • Listing Expected inclusion in FTSE 250 index 11
Financial results Jonathan Yates
HY financial highlights HY 10 FY 09 £m unless otherwise stated Holding companies cash inflows 335 716 Market Consistent Embedded Value (“MCEV”) 1,962 1,827 IGD capital surplus 1.3bn 1.2bn Group IFRS operating profit 176 457 Ignis IFRS operating profit 22 34 Assets under Management 68.6bn 66.9bn MCEV per share (1) £11.90 £11.08 £0.15 (2) Dividend per share in respect of period £0.21 Note: For comparative purposes, FY 09 information includes the Pearl businesses from 1 January 2009 (1) Based on post Premium Listing shares in issue of 164,862,855 (2) FY 09 dividend paid in respect of 4 month period post Liberty acquisition (€0.17 converted to £ at 15 April 2010) 13
Strong holding companies cash inflows • On track to deliver recurring cash inflows HY 10 FY 09 £m from operating subsidiaries at top end of Opening cash 202 86 £400m to £500m annual target Cash receipts • Cash inflows from life companies 326 660 Total cash receipts of £335m include £30m Cash inflows from management services - 35 of cash accelerated through management actions Cash inflows from Ignis 9 21 Total cash receipts 335 716 • £49m of debt interest and £22m debt Uses of cash prepayment made in HY 10 Recurring cash outflows Operating expenses and pension 18 60 • contributions Non recurring cash outflows include IT, business transformation costs and listing Debt service and Tier 1 coupon 98 102 costs External dividend 20 - Total Recurring cash outflows 136 162 Total Non Recurring cash outflows 59 438 Total uses of cash 195 600 Closing cash 342 202 14
Impressive growth in MCEV despite market uncertainty Includes £19m of Includes £97m of management actions • Impressive growth in Group MCEV management actions • £116m of management actions generated £79m £(22)m £(93)m during HY 10 £216m £(45)m £1,962m £1,827m Other (2) MCEV at Operating Economic Non Finance MCEV at earnings variances recurring costs (1) 31 Dec 09 30 Jun 10 items Note: All amounts are presented net of tax (1) Finance costs include £20m external dividend, £33m Tier 1 bond 2010 coupon and debt interest (2) Other relates to £45m of actuarial losses on defined benefit pension schemes 15
Robust IGD surplus £(0.1)bn £0.2bn • £1.3bn IGD surplus represents coverage of 135% £1.2bn • 25% of Impala sub-group (currently not included due to holding company structure) would contribute an additional £0.2bn to the IGD surplus IGD Surplus Capital Dividend IGD Surplus at 31 Dec 09 generation payments and at 30 Jun 10 debt financing costs 16
IGD relatively insensitive £bn Margin IGD surplus at 30 Jun 10 1.3 135% 20% fall in equity markets 1.3 144% 15% fall in property values 1.3 136% 75 bps decrease in yields 1.3 133% 75 bps increase in yields 1.3 135% Credit spread widening (1) 1.2 134% Combined stress (25% equity fall, 20% property fall, yields up 75bps and credit 1.1 145% spreads widening (1) ) (1) 10 year term: AAA - 48bps, AA - 77bps, A - 108bps, BBB - 162bps 17
Strong IFRS operating profit • Strong IFRS operating profit in HY 10 HY 10 FY 09 £m • FY 09 Phoenix Life results benefited from Phoenix Life 182 469 favourable non-economic experience variances and longevity assumption Ignis Asset Management 22 34 changes in H2 09 Corporate Costs (28) (46) • Corporate costs include corporate Operating profit before tax 176 457 operating expenses and IFRS pension charges 18
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