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INTERIM RESULTS
July 2013
DAVID BELLAMY
Chief Executive
Agenda
Business Update
DAVID BELLAMY
Financials
ANDREW CROFT
Outlook
DAVID BELLAMY
Q&A
Total new business by quarter
APE (Annual premiums plus 10% of single premiums)
2010
2011
2012
2013
£220m
223.8
201.3
199.2
£180m
178.9
156.7 152.6
£140m
159.3
153.9
165.6
152.7 152.8
136.5
133.3
£100m
£60m
2010 over 2009
2011 over 2010
2012 over 2011
2013 over 2012
Q1
Q2
Q3
Q4
+42%
+18%
-3%
+31%
+46%
+12%
+13%
+30%
+13%
+8%
+15%
+0%
+46%
Total new business by quarter
APE (Annual premiums plus 10% of single premiums)
2010
2011
2012
2013
£220m
227.3
201.3
199.2
£180m
223.8
178.9
156.7 152.6
£140m
159.3
153.9
165.6
152.7 152.8
136.5
133.3
£100m
£60m
2010 over 2009
2011 over 2010
2012 over 2011
2013 over 2012
Q1
Q2
Q3
Q4
+42%
+18%
-3%
+31%
+46%
+12%
+13%
+30%
+13%
+8%
+15%
+0%
+46%
+13%
Single investment by quarter
£2000m
2010
2011
2012
2013
1,927
£1600m
1,601
£1200m
£800m
1115
1,288 1,256
1,787
1,445 1,501
1276.2
1,263
1,331
1104.5
1253.1 1,206
£400m
£0m
2010 over 2009
2011 over 2010
2012 over 2011
2013 over 2012
Q1
Q2
Q3
Q4
+57%
+16%
-3%
+28%
+54%
+13%
+4%
+32%
+14%
+5%
+16%
-4%
+48%
+28%
Net inflows (£bn)
£2.0bn
£1.7bn
£1.5bn
£1.5bn
£1.1bn
£0.8bn
H1 2008
H1 2009
H1 2010
H1 2011
H1 2012
H1 2013
Funds under management
18% p.a compound growth over the last
5 years and 20% p.a over 10 years (at June 2013)
£40bn
+15%
£35bn
+22% £39.9
£30bn
+26%
£25bn
+31%
£20bn
+18%
+25%
£15bn
£10bn
+6%
+20%
-10%
+29%
+34%
£5bn
£0bn
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
June
Five strong years of Partner recruitment
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1346
+7%
2008
1467
+9%
1555
+6%
2009
2010
1649
+6%
2011
1788
+8.4%
2012
+6.5%
1,905
H1 2013
New business results
• New business up 21%
• New single investments of £3.5 billion (up 28%)
• Net inflows £2.0 billion (up 32%)
• FUM £39.9 billion (up 15% ytd)
• Partnership 1,905 (up 6.5% ytd)
• Interim dividend up 50%
ANDREW CROFT
Chief Financial Officer
First half profit drivers
• New business growth of 21% (28% excluding last year
large group pension scheme)
• Favourable business mix – manufactured up 24%
• Careful management of expenses
• Continued strong retention
• Very strong investment returns
Reinsurance treaty
• New treaty entered into by UK life company
• Removes remaining insurance and persistency risk of
closed Protection book
• Positive post-tax benefit of £18.3 million in the cash result
• Release of prudent solvency reserves and realisation of the
capitalised value of expected future margins
• Neutral in EEV
• Small IFRS pre-tax benefit of £8.9 million
Capital losses
• Value placed on capital losses within group now capable
of being utilised
• £38.4 million deferred tax asset in IFRS result
• £32.0 million positive experience variance in EEV result
• Benefit to be realised in cash result over medium term
Changes in respect of adviser charging
• New rules have changed nature of certain cash flows
• Loss of tax relief on the adviser charge which reduces the
new business margin
• Acceleration of cash earnings on certain pension business
reducing new business strain
Analysis of EEV operating profit
£’m
New business contribution
Profits from existing business
– expected
– experience variance
– operating assumption changes
Investment income
Life & unit trust operating profit
Distribution
Other
Operating profit
2013
2012
152.4
120.6
56.5
39.3
1.7
249.9
(2.1)
(14.2)
233.6
48.9
3.7
1.4
174.6
2.0
(8.8)
167.8
+26%
Analysis of EEV operating profit
£’m
New business contribution
Profits from existing business
– expected
– experience variance
– operating assumption changes
Investment income
Life & unit trust operating profit
Distribution
Other
Operating profit
2013
2012
152.4
120.6
56.5
39.3
1.7
249.9
(2.1)
(14.2)
233.6
48.9
3.7
1.4
174.6
2.0
(8.8)
167.8
Analysis of EEV operating profit
£’m
New business contribution
Profits from existing business
– expected
– experience variance
– operating assumption changes
Investment income
Life & unit trust operating profit
Distribution
Other
Operating profit
2013
2012
152.4
120.6
56.5
39.3
1.7
249.9
(2.1)
(14.2)
233.6
48.9
3.7
1.4
174.6
2.0
(8.8)
167.8
Analysis of EEV operating profit
£’m
New business contribution
Profits from existing business
– expected
– experience variance
– operating assumption changes
Investment income
Life & unit trust operating profit
Distribution
Other
Operating profit
2013
2012
152.4
120.6
56.5
39.3
1.7
249.9
(2.1)
(14.2)
233.6
48.9
3.7
1.4
174.6
2.0
(8.8)
167.8
Analysis of EEV operating profit
£’m
New business contribution
Profits from existing business
– expected
– experience variance
– operating assumption changes
Investment income
Life & unit trust operating profit
Distribution
Other
Operating profit
2013
2012
152.4
120.6
56.5
39.3
1.7
249.9
(2.1)
(14.2)
233.6
48.9
3.7
1.4
174.6
2.0
(8.8)
167.8
Analysis of EEV operating profit
£’m
New business contribution
Profits from existing business
– expected
– experience variance
– operating assumption changes
Investment income
Life & unit trust operating profit
Distribution
Other
Operating profit
2013
2012
152.4
120.6
56.5
39.3
1.7
249.9
(2.1)
(14.2)
233.6
48.9
3.7
1.4
174.6
2.0
(8.8)
167.8
Analysis of EEV operating profit
£’m
New business contribution
Profits from existing business
– expected
– experience variance
– operating assumption changes
Investment income
Life & unit trust operating profit
Distribution
Other
Operating profit
2013
2012
152.4
120.6
56.5
39.3
1.7
249.9
(2.1)
(14.2)
233.6
48.9
3.7
1.4
174.6
2.0
(8.8)
167.8
Analysis of EEV operating profit
£’m
New business contribution
Profits from existing business
– expected
– experience variance
– operating assumption changes
Investment income
Life & unit trust operating profit
Distribution
Other
Operating profit
2013
2012
152.4
120.6
56.5
39.3
1.7
249.9
(2.1)
(14.2)
233.6
48.9
3.7
1.4
174.6
2.0
(8.8)
167.8
+39%
Analysis of EEV pre-tax result
£’m
2013
2012
Operating profit
233.6
167.8
Investment variance
209.5
54.9
Economic assumption change
Pre-tax result
1.5
444.6
(2.2)
220.5
Analysis of EEV pre-tax result
£’m
2013
2012
Operating profit
233.6
167.8
Investment variance
209.5
54.9
Economic assumption change
Pre-tax result
1.5
444.6
(2.2)
220.5
+102%
EEV post-tax result
£’m
2013
2012
Pre- tax result
444.6
220.5
Tax on ordinary activities
(88.0)
(46.8)
18.9
18.7
375.5
192.4
Corporation tax change
Post-tax result
Tax rate on ordinary activities
20%
21%
EEV post-tax result
£’m
2013
2012
Pre- tax result
444.6
220.5
Tax on ordinary activities
(88.0)
(46.8)
Corporation tax change
18.9
18.7
375.5
192.4
Post-tax result
Tax rate on ordinary activities
20%
21%
EEV post-tax result
£’m
2013
2012
Pre- tax result
444.6
220.5
Tax on ordinary activities
(88.0)
(46.8)
18.9
18.7
375.5
192.4
Corporation tax change
Post-tax result
Tax rate on ordinary activities
20%
21%
EEV post-tax result
£’m
2013
2012
Pre- tax result
444.6
220.5
Tax on ordinary activities
(88.0)
(46.8)
Corporation tax change
18.9
18.7
375.5
192.4
Post-tax result
Tax rate on ordinary activities
20%
21%
EEV net asset value per share
Pence
Net asset value per share
2013
2012
524.1
414.6
+26%
Pre-tax IFRS
£’m
2013
2012
Life
81.1
52.6
Unit trust
25.3
13.1
Distribution
(2.1)
2.0
(14.2)
(8.8)
90.1
58.9
Other
Profit before shareholder tax
+54%
Pre-tax IFRS
£’m
2013
2012
Life
81.1
52.6
Unit trust
25.3
13.1
Distribution
(2.1)
2.0
(14.2)
(8.8)
90.1
58.9
Other
Profit before shareholder tax
+93%
Pre-tax IFRS
£’m
2013
2012
Life
81.1
52.6
Unit trust
25.3
13.1
Distribution
(2.1)
2.0
(14.2)
(8.8)
90.1
58.9
Other
Profit before shareholder tax
Pre-tax IFRS
£’m
2013
2012
Life
81.1
52.6
Unit trust
25.3
13.1
Distribution
(2.1)
2.0
(14.2)
(8.8)
90.1
58.9
Other
Profit before shareholder tax
+53%
IFRS post-tax result
£’m
2013
2012
90.1
58.9
(20.3)
(12.8)
38.4
-
Post-tax result
108.2
46.1
Tax on ordinary activities
22.5%
Pre- tax result
Tax on ordinary activities
Recognition of capital losses
21.7%
IFRS post-tax result
£’m
2013
2012
90.1
58.9
(20.3)
(12.8)
38.4
-
Post-tax result
108.2
46.1
Tax on ordinary activities
22.5%
Pre- tax result
Tax on ordinary activities
Recognition of capital losses
21.7%
IFRS post-tax result
£’m
2013
2012
90.1
58.9
(20.3)
(12.8)
38.4
-
Post-tax result
108.2
46.1
Tax on ordinary activities
22.5%
Pre- tax result
Tax on ordinary activities
Recognition of capital losses
21.7%
IFRS post-tax result
£’m
2013
2012
90.1
58.9
(20.3)
(12.8)
38.4
-
Post-tax result
108.2
46.1
Tax on ordinary activities
22.5%
Pre- tax result
Tax on ordinary activities
Recognition of capital losses
21.7%
Analysis of post-tax cash result
£’m
2013
2012
Underlying cash result
66.9
41.9
Reinsurance transaction
18.3
-
Variance
(2.6)
3.0
82.6
44.9
+60%
Analysis of post-tax cash result
£’m
2013
2012
Underlying cash result
66.9
41.9
Reinsurance transaction
18.3
-
Variance
(2.6)
3.0
82.6
44.9
Analysis of post-tax cash result
£’m
2013
2012
Underlying cash result
66.9
41.9
Reinsurance transaction
18.3
-
Variance
(2.6)
3.0
82.6
44.9
Analysis of post-tax cash result
£’m
2013
2012
Underlying cash result
66.9
41.9
Reinsurance transaction
18.3
-
Variance
(2.6)
3.0
82.6
44.9
+84%
Underlying cash
£’m
2013
2012
Arising on opening in force
91.9
75.7
Margin arising on new business
18.5
3.1
Expenses
(46.4)
(40.5)
2.9
3.6
66.9
41.9
Other
+21%
Return on in force
• c£12.2 billion of new business added in last six years,
which is not yet generating positive cash earnings*
• Over £91.0 million of post tax cash earnings per
annum in future*
* Ignores stock net movements and out flows
Underlying cash
£’m
2013
2012
Arising on opening in force
91.9
75.7
Margin arising on new business
18.5
3.1
Expenses
(46.4)
(40.5)
2.9
3.6
66.9
41.9
Other
Underlying cash
£’m
2013
2012
Arising on opening in force
91.9
75.7
Margin arising on new business
18.5
3.1
Expenses
(46.4)
(40.5)
2.9
3.6
66.9
41.9
Other
Underlying cash
£’m
2013
2012
Arising on opening in force
91.9
75.7
Margin arising on new business
18.5
3.1
Expenses
(46.4)
(40.5)
2.9
3.6
66.9
41.9
Other
Dividend
Maturing FUM = Increasing emergence of cash
Increasing emergence of cash = Increasing dividend
Dividend
• Interim dividend to increase by 50%
• Expect a similar increase in the full year dividend
• Thereafter dividend to progressively grow in line with the
underlying performance of the business
Investment programme
• Need to invest to accommodate future growth and
achieve efficiency savings
• Major systems development costs will be borne by
outsourced provider
• We will have internal project costs over the next
couple of years
• Estimate of £5.0 million cost in 2013
• Internal expenditure covered by cash released from
reinsurance treaty
Summary
• 2013 has got off to a great start
• Strong financial performance on all measures
• Highlight is the post tax cash result
• 50% increase in the interim dividend
DAVID BELLAMY
Chief Executive
The Growth Model
NEW BUSINESS
NEW BUSINESS
CAPACITY
Number of Partners
PRODUCTIVITY
New business per Partner
52
“Simple but not easy”
Partnership growth
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Adviser numbers down 20%
Academy
• 100 ‘students’
–
–
–
–
–
–
Average age 38
Age range 23 to 50+
20% are female
50% from broader financial services
50% military, law, sport, retail, accountancy etc.
Majority referred by Partners
• 100% Diploma qualified within 12 months
• Graduation to Partnership beginning in 2014
Other initiatives
• Regional Academies
• Third party relationships – military, sports bodies,
City out-placement agencies and universities
• Overseas adviser opportunities
Client engagement
• Wealth account survey – over 45,000 responses
• Over 300 centrally supported client forums – circa
40,000 clients
• Other Partner led client events
• CEO lunches
“Simple but not easy”
Bespoke iPad applications
E-Briefing service
E-Briefing service – tailored to client needs
New Intranet
ST JAMES’S
PLACE
NEW
BUSINESS
CRAIGFORTH
Life & Pensions
BASILDON
Unit Trust / ISA
68
ST JAMES’S
PLACE
NEW
BUSINESS
Unified Administration
CRAIGFORTH
Life & Pensions
BASILDON
Unit Trust / ISA
69
Launch of the journey to the FCA
“The FCA has been set up to work with firms to ensure they put
consumers at the heart of their business”
Underlying this are three outcomes:
• Consumers get financial services and products that meet their
needs from firms they can trust
• Firms compete effectively with the interests of their
customers and the integrity of the market at the heart of how
they run their business
• Markets and financial systems are sound, stable and resilient
with transparent pricing information
Speech by Martin Wheetley - 16 October 2012
• “The best firms, the most successful firms, the most
trusted, are the ones that take customers seriously in this
environment of expectation. The ones that understand
the currency of trust in generating business.”
• “Customer focus has to become a bread and butter staple
of financial services”
Speech by Martin Wheatley at Chartered Institute for Securities & Investment 12.3.13
Summary
• New business £426.5m - up 21%
• Single investments £3.5 billion – up 28%
• Net inflow of funds £2 billion – up 32%
• Funds under management £39.9 billion – up 29%
• EEV operating profit £233.6m – up 39%
• IFRS profit before shareholder tax of £90.1m – up 53%
• Underlying post tax cash result of £66.9m up 60%
• Interim dividend of 6.38 pence per share – up 50%