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INTERIM RESULTS
July 2010
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Mike WilsonCHAIRMAN
David BellamyCHIEF EXECUTIVE
Andrew CroftFINANCE DIRECTOR
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MIKE WILSON
Chairman
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Agenda
IntroductionMIKE WILSON
Business UpdateDAVID BELLAMY
FinancialsANDREW CROFT
Outlook DAVID BELLAMY
Q&A
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DAVID BELLAMY
Chief Executive
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113.2101.9
115.7
97.8 96.4101.9
122.0
98.7
133.2
104.6109.2
93.8
159.3
133.3
£60m
£80m
£100m
£120m
£140m
£160m
Q1 Q2 Q3 Q4
Total new business by quarter
APE (Annual premiums plus 10% of single premiums)
2007 over 2006
+41% +26% +20% +10%
2008 over 2007
+1% +5% +0% -15%
2009 over 2008
-5% -10% +3% +38%
2009 over 2010
+42% +46%
2007 2008 2009 2010
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Strong growth across the board
• Manufactured business is up 47% (to 91% of total)
• Investment business is up 66%– Unit trusts / ISAs up 70%– Onshore / Offshore Bonds up 62%
• Single premium pensions is up 36%
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Record half year single investments (£’bn)
2.4
1.51.71.7
1.2
£0bn
£1bn
£2bn
£3bn
2006 2007 2008 2009 2010
+71%
+42% +0%-12%
+60%
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Strong retention rate of funds under management
94.5%96.0%94.8%94.9%94.2%
50%
75%
100%
2006 2007 2008 2009 2010*
*annualised
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1.5
1.0
0.8
1.0
0.7
£0.0bn
£0.5bn
£1.0bn
£1.5bn
2006 2007 2008 2009 2010
Growing first half net inflow of funds under management (£’bn)
+75%
+43%
-20%
+25%
+50%
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22.4
16.917.217.3
13.5
£0bn
£4bn
£8bn
£12bn
£16bn
£20bn
£24bn
2006 2007 2008 2009 2010
Half year funds under management (£’bn)
+29%
+28% -1% -2%
+33%
16% p.a compound growth
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Growing number of partners
1,5061,4641,340
1,2511,157
0
200
400
600
800
1,000
1,200
1,400
1,600
2006 2007 2008 2009 H1 2010
+5%+8%
+7%+9% +3%
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Exceptional performance
• APE of £292.6 million up 44%
• Total single investments of £2.4 billion up 60%
• Continued strong retention of client funds
• Net inflows of £1.5 billion up 50%
• Funds under Management of £22.4 billion
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ANDREW CROFT
Finance Director
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Highlights
• New business on an APE basis £292.6 million up 44%
• EEV new business profit of £100.9 million up 65%
• EEV operating profit at £162.1 million up 60%
• IFRS profit before shareholder tax of £36.3 million up 82%
• Cash result of £18.7 million up from £0.6 million
• EEV net asset value per share of 294.9p
• IFRS net asset value per share of 116.3p
• Interim dividend of 2.025p per share up 10%
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Analysis of EEV operating profit
£’m H1 2010 H1 2009
New business contribution 100.9 61.3 +65%Profits from existing business– expected 46.8 37.6– experience variance 12.1 9.0– operating assumption
changes - 1.6
Investment income 1.9 2.4Life & unit trust operating profit
161.7 111.9
Distribution 5.9(5.0)
Other(5.5) (5.9)
Operating profit 162.1 101.0
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Analysis of EEV pre-tax result
£’m H1 2010 H1 2009
Operating profit 162.1 101.0
Investment variance (84.5) (63.2)Economic assumption change 9.4
(10.4)Pre-tax result 87.0 27.4
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Analysis of adjusted post tax cash result
£’m H1 2010 H1 2009
Net annual management fee 83.7 56.4
Unwind of surrender penalties (27.5) (20.4)
56.2 36.0 +56%
New business strain(5.1) (5.5)
Establishment expenses(35.7) (35.3)
Shareholder interest 1.5 2.0
Development costs(2.0) -
Miscellaneous 3.8 3.4
18.7 0.6
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Analysis of IFRS profit
£’m H1 2010 H1 2009
Cash result 18.7 0.6DAC / DIR amortisation 7.8 7.7DAC / DIR new business 9.2 9.7
PVIF(1.4) (1.3)
Share options(4.9) (5.2)
Other(1.0) 4.5
28.4 16.0Taxation 7.9 4.0Pre-tax profit 36.3 20.0
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Analysis of cash result + IFRS result
£’m H1 2010 H1 2009
Cash (post tax)
Arising on in force business
52.6 35.9 +47%
Arising from new business (33.9) (35.3)
Post tax Cash result 18.7 0.6
IFRS (pre-tax)
Arising on in force business
67.9 52.0 +31%
Arising from new business (31.6) (32.0)Pre tax IFRS results 36.3 20.0
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Return on in force business
• Majority of return comes from fees from funds under management less the unwind & surrender penalties
• Unwind & surrender penalty occurs in first six years
• Consequently the return on new funds added in the last six years is not yet fully contributing to the cash result
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Single premium investment (£’bn)
1.6
2.63.4 3.1
3.5
2.4
£0.0bn
£1.3bn
£2.5bn
£3.8bn
2005 2006 2007 2008 2009 H1 2010
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Single premium investment (£’bn)
0.81.2 1.5 1.3 1.5
1.0
0.8
1.4
1.91.8
2.0
1.4
£0.0bn
£1.3bn
£2.5bn
£3.8bn
2005 2006 2007 2008 2009 H1 2010With surrender penalties Without surrender penalties
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Return on in force
• Some £7.3 billion of new business added in last six years not yet generating positive cash earnings*
• Over £50 million of post tax cash earnings per annum in future*
* Ignores stock net movements and out flows
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Analysis of cash result + IFRS result
£’m H1 2010 H1 2009
Cash (post tax)
Arising on in force business 52.6 35.9 +47%
Arising from new business (33.9) (35.3)
Post tax Cash result 18.7 0.6
IFRS (pre-tax)
Arising on in force business 67.9 52.0 +31%
Arising from new business (31.6) (32.0)
Pre tax IFRS results 36.3 20.0
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Return on the investment in new business
1.5%Investment as a % of gross new FUM
2.3%Investment as a % of net inflow of FUM
5-6 yearsCash payback period
20.5%IRR (net of tax)
£74.7mPost tax value of expected profit
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Interim dividend
Increased by 10% to
2.025 pence
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Capital position
• Total group solvency assets at 30 June 2010 are £281.2 million
• Solvency remains strong
• Investment policy for solvency assets continues to be prudent
• Solvency II
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DAVID BELLAMY
Chief Executive
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The Opportunities
• Increasing tax burden
• Sustained low interest rates
• People not confident they have enough for retirement
• Migration from DB pensions to DC continues
• Fewer advisers (200,000 – 1990; 50,000 – 2010)
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Our strategy
• Broadening the investment proposition
• Focusing on the drivers for growth– Partner productivity– Partner numbers
• Preparing for the future
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UK Absolute Return Fund
Mark Lyttleton Nick Osborne
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Global Emerging Markets Fund
Jonathan Asante
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International Corporate Bond Fund
Jill Fields Zak Summerscale
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New Fund Managers – April 2010
Mark Lyttleton Nick Osborne Jill Fields Zak SummerscaleJonathan Asante
Over £200 million
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Retail distribution review
• Well placed
• Positive impact on recruitment
• Positive impact on retention
• Positive momentum towards Diploma +
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138.1
182.0 173.5148.5
197.0
0
30
60
90
120
150
180
210
H1 2006 H1 2007 H1 2008 H1 2009 H1 2010
Half year productivity (APE per Partner)
£,000s
+33%
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Compound APE Growth – rolling five years
Growth
25.5%
Jul 03 - Jun 08
18.8%
Jul 04 - Jun 09
22.7%
Jul 05 - Jun 10
17.4
Jul 02 - Jun 07
17.4%15%
20%
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Quality of earnings
• No one Partner represents more than 1% of our earnings
• No one client or corporate investor represents more than 1% of our earnings
• The business growth is pretty much across all our wrappers
• Over 75% of the business is repeat business or referral
• Around 95% of the clients’ funds are retained year on year
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Summary
• APE up 44%
• Single investments up 60%
• Manufactured business at 91%
• Net inflows up 50%
• Funds under management of £22.4 billion
• EEV Operating Profit up 60%
• IFRS Profit before tax up 82%
• Interim dividend up 10%
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