ANNUAL RESULTS February 2010. MIKE WILSON Chairman.

ANNUAL RESULTS ANNUAL RESULTS

February 2010February 2010

MIKE WILSONMIKE WILSONChairmanChairman

Mike WilsonCHAIRMAN

David BellamyCHIEF EXECUTIVE

Andrew CroftFINANCE DIRECTOR

Mike WilsonCHAIRMAN

David BellamyCHIEF EXECUTIVE

Andrew CroftFINANCE DIRECTOR

AgendaAgenda

IntroductionIntroduction MIKE WILSONMIKE WILSON

Business UpdateBusiness Update DAVID BELLAMYDAVID BELLAMY

FinancialsFinancials ANDREW CROFTANDREW CROFT

Outlook Outlook DAVID BELLAMYDAVID BELLAMY

Q&AQ&A

DAVID BELLAMYDAVID BELLAMYChief ExecutiveChief Executive

Review of 2009Review of 2009

New BusinessNew Business

• Total single investments of £3.5bn up 13%Total single investments of £3.5bn up 13%

• APE of £440.8m up 5% APE of £440.8m up 5%

• Manufactured proportion 91%Manufactured proportion 91%

Investment new businessInvestment new business

SSingle premiums

£738.0m

£554.7m£557.9m

£431.0m

Q1 Q2 Q3 Q4

-12%-12% +20%+20%

2009 over 20082009 over 2008

-15%-15% +64%+64%

Pensions new businessPensions new business

SSingle premiums

£346.7m

£280.1m£269.7m£280.1m

Q1 Q2 Q3 Q4

-0%-0% -1%-1%

2009 over 20082009 over 2008

+11%+11% +30%+30%

Total single investmentsTotal single investments

-8%-8% +12%+12%

2009 over 20082009 over 2008

-6%-6% +50%+50%

£280.1m

£269.7m £280.1m

£346.7m

£431.0m£557.9m

£554.7m

£738.0m

Q1 Q2 Q3 Q4

Investments Pensions

£133.2m

£104.6m£109.2m£93.8m

Q1 Q2 Q3 Q4

Total new business (APE)Total new business (APE)

APE (Annual premiums plus 10% of single premiums)APE (Annual premiums plus 10% of single premiums)

-10%-10% +3%+3%

2009 over 20082009 over 2008

-5%-5% +38%+38%

£122.7m

£95.7m£98.4m£83.3m

Q1 Q2 Q3 Q4

Manufactured new business (APE)Manufactured new business (APE)

-3%-3% +12%+12%

2009 over 20082009 over 2008

-1%-1% +43%+43%

APE (Annual premiums plus 10% of single premiums)APE (Annual premiums plus 10% of single premiums)


Funds under ManagementFunds under Management

• Continued 95% retentionContinued 95% retention

• Net inflows of funds of £2.3bn up 35%Net inflows of funds of £2.3bn up 35%

• Funds under management £21.4bn up 31%Funds under management £21.4bn up 31%

£2.3bn

£1.7bn£1.9bn

£1.4bn

£0.9bn

2005 2006 2007 2008 2009

Net inflow of funds under managementNet inflow of funds under management

11%11% 12%12%

Percentage of opening FUMPercentage of opening FUM

9%9% 14%14%9%9%

+56%+56%

+36%+36%-10%-10%

+35%+35%


PartnershipPartnership

• Continued strong retentionContinued strong retention

• 20 Academy graduates20 Academy graduates

• Partnership numbers 1464 up 9%Partnership numbers 1464 up 9%

Number of PartnersNumber of Partners

1,464

2005 2006 2007 2008 2009

+5%+5%+2%+2%

+8%+8%

+7%+7%

+9%+9%


New BusinessNew Business• Total single investments of £3.5bn up 13%Total single investments of £3.5bn up 13%• APE of £440.8m up 5% (H1 -8%; H2 +20%)APE of £440.8m up 5% (H1 -8%; H2 +20%)• Manufactured proportion 91%Manufactured proportion 91%

Funds under ManagementFunds under Management• Continued 95% retentionContinued 95% retention• Net inflows of funds of £2.3bn up 35%Net inflows of funds of £2.3bn up 35%• Funds under management £21.4bn up 31%Funds under management £21.4bn up 31%

PartnershipPartnership• Continued strong retentionContinued strong retention• 20 Academy graduates20 Academy graduates• Partnership numbers 1464 up 9%Partnership numbers 1464 up 9%

ANDREW CROFTANDREW CROFTFinance DirectorFinance Director

Profit measuresProfit measures

EEVEEV

• Result reflects the net present value of future shareholder Result reflects the net present value of future shareholder cash flowscash flows

Cash resultCash result

• Is a measure of the underlying cash generated by the Is a measure of the underlying cash generated by the businessbusiness

• Reflects the positive cash flow from in force business less Reflects the positive cash flow from in force business less the negative cash flow from acquiring new businessthe negative cash flow from acquiring new business

IFRS resultIFRS result

• Aims to smooth the emergence of profit over the life of the Aims to smooth the emergence of profit over the life of the contractcontract

We manage shareholder value based on the EEVWe manage shareholder value based on the EEVand cash result and not the IFRS resultand cash result and not the IFRS result

HighlightsHighlights

• EEV new business profit of £155.4 million EEV new business profit of £155.4 million up 26%up 26%

• EEV operating of £228.9 million up 12%EEV operating of £228.9 million up 12%

• EEV pretax profits of £363.2 million compared EEV pretax profits of £363.2 million compared with a loss of £115.9 million in 2008with a loss of £115.9 million in 2008

• EEV net asset value per share of 284.5p up 22%EEV net asset value per share of 284.5p up 22%

• Final dividend of 2.66p up 4%Final dividend of 2.66p up 4%

Analysis of Operating ProfitAnalysis of Operating Profit

£’m£’m 20092009 20082008

New business contributionNew business contribution 155.4155.4 123.5123.5

Profits from existing businessProfits from existing business–expectedexpected 78.378.3 80.580.5–experience varianceexperience variance 11.611.6 16.916.9–operating assumption changesoperating assumption changes (1.5)(1.5) (0.9)(0.9)

Investment incomeInvestment income 5.65.6 4.94.9

Life & unit trust operating profitLife & unit trust operating profit 249.4249.4 224.9224.9

OtherOther (20.5)(20.5) (20.6)(20.6)

Operating profitOperating profit 228.9228.9 204.3204.3

MarginMargin

• Higher new businessHigher new business

• Manufactured business 91% compared Manufactured business 91% compared with 86% with 86%

• Total direct expenses and establishment Total direct expenses and establishment costs down 4%costs down 4%

• Margin as percentage of APE increased to Margin as percentage of APE increased to 35.3% (2008: 29.5%)35.3% (2008: 29.5%)


£’m£’m 20092009 20082008


Profits from existing businessProfits from existing business–expectedexpected 78.378.3 80.580.5–experience varianceexperience variance 11.611.6 16.916.9–operating assumption changesoperating assumption changes (1.5)(1.5) (0.9)(0.9)



OtherOther (20.5)(20.5) (20.6)(20.6)



£’m£’m 20092009 20082008


Profits from existing businessProfits from existing business–expectedexpected 78.378.3 80.580.5

–experience varianceexperience variance 11.611.6 16.916.9

–operating assumption changesoperating assumption changes (1.5)(1.5) (0.9)(0.9)



OtherOther (20.5)(20.5) (20.6)(20.6)



£’m£’m 20092009 20082008


Profits from existing businessProfits from existing business–expectedexpected 78.378.3 80.580.5

–experience varianceexperience variance 11.611.6 16.916.9

–operating assumption changeoperating assumption change (1.5)(1.5) (0.9)(0.9)



OtherOther (20.5)(20.5) (20.6)(20.6)


Analysis of Pre-Tax ResultAnalysis of Pre-Tax Result

£’m£’m 20092009 20082008


Investment varianceInvestment variance 148.2148.2 (320.6)(320.6)

Economic assumption changeEconomic assumption change (13.9)(13.9) 0.40.4

Pre-tax resultPre-tax result 363.2363.2 (115.9)(115.9)

Investment VarianceInvestment Variance

• Sensitivity provided is for a 10% change in Sensitivity provided is for a 10% change in the value of equitiesthe value of equities

• Some 70/80% of our funds under Some 70/80% of our funds under management are invested in equitiesmanagement are invested in equities

• Our funds are global and the £ MSCI is the Our funds are global and the £ MSCI is the best index to use in your modellingbest index to use in your modelling

Analysis of Pre-Tax ResultAnalysis of Pre-Tax Result

£’m£’m 20092009 20082008


Investment varianceInvestment variance 148.2148.2 (320.6)(320.6)

Economic assumption changeEconomic assumption change(13.9)(13.9) 0.40.4

Pre-tax resultPre-tax result 363.2363.2 (115.9)(115.9)

EEV Net Asset Value per ShareEEV Net Asset Value per Share

Net asset valueNet asset value

284.5p284.5p

Analysis of Post Tax Cash ResultAnalysis of Post Tax Cash Result

£’m£’m 20092009 20082008

Arising on in force businessArising on in force business 88.888.8 91.491.4

Arising from new businessArising from new business(65.3)(65.3) (67.3)(67.3)

Cash ResultCash Result 23.523.5 24.124.1

DividendDividend

Final dividendFinal dividend

Increased by 4% to 2.66 penceIncreased by 4% to 2.66 pence

Full year dividendFull year dividend

Up 2.5% to 4.5 penceUp 2.5% to 4.5 pence

Capital PositionCapital Position

• Total group solvency assets of £263.3Total group solvency assets of £263.3

• Solvency remains strongSolvency remains strong

• Investment policy for solvency assets Investment policy for solvency assets continues to be prudentcontinues to be prudent

• Solvency IISolvency II

IFRS ResultIFRS Result

£’m£’m 20092009 20082008

One–off itemsOne–off items -- 16.216.2

Share optionsShare options (8.6)(8.6) (14.9)(14.9)

Interest incomeInterest income 6.16.1 22.622.6

OtherOther 52.452.4 56.856.8

Profit before policyholder taxProfit before policyholder tax 49.949.9 80.780.7

IFRS exampleIFRS example

• £100,000 unit trust investment£100,000 unit trust investment

• 5% bid offer spread and 3% directly 5% bid offer spread and 3% directly attributable expensesattributable expenses

• Cash profit of £2,000 (£5,000-3,000)Cash profit of £2,000 (£5,000-3,000)

• IFRS result spreads profit over the expected life IFRS result spreads profit over the expected life of contractof contract

• If expected life of the contract is 5 years then year 1 If expected life of the contract is 5 years then year 1 profit is £400profit is £400

• However if expected life of contract is 10 years then However if expected life of contract is 10 years then year 1 profit is £200year 1 profit is £200

• A tension between managing the IFRS result and A tension between managing the IFRS result and shareholder valueshareholder value

SummarySummary

• Record new businessRecord new business

• Establishment expenses 4% below last yearEstablishment expenses 4% below last year

• Record new business contribution Record new business contribution

• Highest ever marginHighest ever margin

• Positive experience variance Positive experience variance

• Increased operating profitIncreased operating profit

• Strong solvency positionStrong solvency position

• Increased dividendIncreased dividend

DAVID BELLAMYDAVID BELLAMYChief ExecutiveChief Executive


• A record yearA record year• in new businessin new business• in funds under managementin funds under management• in new business profitin new business profit• in recruitment and size of the Partnershipin recruitment and size of the Partnership

• A year of two halvesA year of two halves

+27%

-4%

-17%

-11%

Q1 Q2 Q3 Q4

2009 Productivity (APE per Partner)2009 Productivity (APE per Partner)

The Growth ModelThe Growth Model

TargetTarget15 – 20% pa15 – 20% pa

New BusinessNew Business

CapacityNo of Partners

CapacityNo of Partners

ProductivityNew Business

Per Partner

ProductivityNew Business

Per Partner

+27%

-4%

-17%

-11%

Q1 Q2 Q3 Q4

2009 Productivity (APE per Partner)2009 Productivity (APE per Partner)

+27%

-4%

-17%-11%

+11%

+7%+7%+6%

Q1 Q2 Q3 Q4

Average APE New Partners

2009 Growth in APE2009 Growth in APE

Total APE GrowthTotal APE Growth

-10%-10% +3%+3%-5%-5% +38%+38%

Productivity (APE per Partner £’000s)Productivity (APE per Partner £’000s)

314.1323.2

388.0

311.8

193.4

2005 2006 2007 2008 2009

+61%+61%

+23%+23%

+14%+14%

-9%-9% -3%-3%

Number of PartnersNumber of Partners

1,464

2005 2006 2007 2008 2009

+5%+5%+2%+2%

+8%+8%

+7%+7%

+9%+9%

Retail Distribution ReviewRetail Distribution Review

• Further demonstration of our professionalismFurther demonstration of our professionalism

• Accredited SJP moduleAccredited SJP module

• Realigned management structureRealigned management structure

• We will minimise fall out and disruptionWe will minimise fall out and disruption


Provider/Product BiasProvider/Product Bias

• No provider biasNo provider bias

• Minor product differences – already addressedMinor product differences – already addressed

Restricted AdviceRestricted Advice

• Variation on a themeVariation on a theme

• Investment Management Approach is keyInvestment Management Approach is key

• Professional and trusted advice is what mattersProfessional and trusted advice is what matters


Adviser ChargingAdviser Charging

• Still not clearStill not clear

• Vertically Integrated Firms are different (to IFA’s)Vertically Integrated Firms are different (to IFA’s)

• Our approach is integratedOur approach is integrated• we are responsible for the advice (we guarantee it!)we are responsible for the advice (we guarantee it!)• we have a distinct investment approachwe have a distinct investment approach• we build long term relationshipswe build long term relationships

• The market will decide if ‘margins’ are to changeThe market will decide if ‘margins’ are to change• but supply and demand principles will prevailbut supply and demand principles will prevail


• Having a positive impact on recruitmentHaving a positive impact on recruitment

• We’re embracing the ‘Diploma’We’re embracing the ‘Diploma’

• We’ve addressed any question of ‘bias’We’ve addressed any question of ‘bias’

• We believe we are better placed than mostWe believe we are better placed than most

Evolving Fund RangeEvolving Fund Range

20082008

• Alternative Asset Fund - BlackrockAlternative Asset Fund - Blackrock

• High Octane FundHigh Octane Fund - Oldfield- Oldfield

• Cash Unit TrustCash Unit Trust - State Street- State Street

20092009

• Corporate Bond Fund Corporate Bond Fund - Invesco Perpetual- Invesco Perpetual

• Gilt Unit TrustGilt Unit Trust - Wellington- Wellington

• Income Unit TrustIncome Unit Trust - Axa Framlington- Axa Framlington

• New managers New managers - Burgundy/Liberty Square/JO - Burgundy/Liberty Square/JO HambroHambro

Investment Management ApproachInvestment Management Approach

• Emerging Market FundEmerging Market Fund

• Global Bond FundGlobal Bond Fund

• Absolute Return FundAbsolute Return Fund

Strengthen the TeamStrengthen the Team

• Senior team together for 18 yearsSenior team together for 18 years

• Development from withinDevelopment from within

• Charles Gregson – new Non-ExecutiveCharles Gregson – new Non-Executive

• Chris Ralph, Vivian Bazalgette Chris Ralph, Vivian Bazalgette & Peter Dunscombe& Peter Dunscombe

The SJP OpportunityThe SJP Opportunity

• In excess of 8m people in the UK with liquid In excess of 8m people in the UK with liquid assets over £50kassets over £50k

• In excess of 500,000 people in the UK with In excess of 500,000 people in the UK with liquid assets over £500kliquid assets over £500k

• Total liquid assets estimated to be over of Total liquid assets estimated to be over of £1.5 trillion over 50% of which is held in cash£1.5 trillion over 50% of which is held in cash

The SJP OpportunityThe SJP Opportunity

• ISA’s ISA’s

• £170bn £170bn - Cash (BSA)- Cash (BSA)

• £116bn £116bn - Stocks & shares (HMRC)- Stocks & shares (HMRC)

• £220bn£220bnBuilding Society deposits (BSA)Building Society deposits (BSA)

• £750bn£750bnBank deposits (LBG)Bank deposits (LBG)

• £480bn£480bnMutual Funds (IMA)Mutual Funds (IMA)

The OpportunitiesThe Opportunities

• Increasing tax burdenIncreasing tax burden

• Sustained low interest ratesSustained low interest rates

• People not confident they have enough for People not confident they have enough for retirementretirement

• Migration from DB pensions to DC continuesMigration from DB pensions to DC continues

• Fewer advisers (200,000 – 1990; 50,000 – 2010)Fewer advisers (200,000 – 1990; 50,000 – 2010)

SummarySummary

• Proven track record of growthProven track record of growth

• Resilient in tough marketsResilient in tough markets

• Well positioned for future growthWell positioned for future growth

ANNUAL RESULTS February 2010. MIKE WILSON Chairman.

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