REG - Phoenix Group Hldgs - 2023 Interim Results

Phoenix groupAnnouncement

18/09/2023 07:00

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RNS Number : 6886M  Phoenix Group Holdings PLC  18 September 2023

Phoenix Group is executing on its strategy, delivering strong organic growth
and resilient cash generation

We are delivering sustainable organic growth

·    106% year-on-year increase in H1 incremental new business long-term
cash generation to £885m (H1 2022: £430m).

·    Comprises £665m from Retirement Solutions (H1 2022: £282m) and
£220m from our capital-light fee-based businesses (H1 2022: £148m).

·    72% year-on-year increase in new business net fund flows to £3.1bn
(H1 2022: £1.8bn).

·    Phoenix is now on track to deliver positive Group net fund flows from
2024, for the first time in its history.

 

We continue to deliver high levels of dependable cash generation

·    £898m(1) of cash generation(2) (H1 2022: £950m); now confident of
delivering at the top-end of our £1.3bn-to-£1.4bn target range for the year.

·    £12.5bn of Group in-force long-term free cash increased by c.£0.4bn
(FY22: £12.1bn) with strong growth both organically and through M&A, more
than offsetting our annual uses of cash.

 

Our resilient balance sheet supports investment in growth

·    180%(3,4) Solvency II Shareholder Capital Coverage Ratio ('SCCR')
(FY22: 189%(4)) remains at the top-end of our target range of 140-180%,
providing capacity to invest in growth opportunities, as we have done in the
first half.

·    £3.9bn(3) Solvency II Surplus at 30 June 2023 remains resilient
(FY22: £4.4bn).

 

We have the financial flexibility to support our strategy, including the
capacity to raise further debt

·    We have proactively de-levered our balance sheet through the
repayment of £772m of debt since the end of 2020.

·  Alongside updating our Fitch leverage ratio calculation for IFRS 17, we
have also updated the calculation to include the policyholder estate for
market consistency, and this was agreed with Fitch as part of our annual
review.

·    Our restated FY22 Fitch leverage ratio is 25%(5), which is at the
bottom of our 25-30% target range, and leverage is not a constraint to our
M&A ambitions.

 

A sustainable dividend that grows over time

·    The Board has declared a 2023 Interim dividend of 26.0 pence per
share, equal to the 2022 Final dividend, which is a 5% year-on-year increase
(H1 2022: 24.8 pence).

·    The Board will assess the level of the 2023 Final dividend alongside
the Full Year results next year.

 

Commenting on the results, Phoenix Group CEO, Andy Briggs said:

"As the UK's largest long-term savings and retirement business, Phoenix is
executing on its single strategic focus - helping customers journey to and
through retirement.

We are delivering strong organic growth, with new business long-term cash more
than doubling to £885 million in the first half. This was supported by a 72%
year-on-year increase in our new business net fund flows to £3.1bn in H1,
despite a challenging market environment, and we are now confident of
delivering positive Group net fund flows from 2024. We also grew
inorganically, with the completion of the Sun Life of Canada UK acquisition,
with c.20% of the purchase price received in cash generation in just 3 months,
and we are confident of executing further M&A over time.

We continue to deliver our dependable cash generation, with £898 million in
H1, and are on track to deliver at the top-end of our £1.3-£1.4 billion
target range for 2023.

Our impressive first half performance has enabled the Board to declare an
Interim dividend that is a 5% year-on-year increase and executing our strategy
will support us in delivering a dividend that is sustainable and grows over
time."

Clear progress made against our strategic priorities and our key ESG themes

Growing organically

·    The significant progress made with our organic growth strategy means
we now expect to deliver positive Group net fund flows from 2024, which means
our new business inflows will more than offset our Heritage run-off outflows.

·    Our strategy is designed to maintain a balanced business mix over
time; c.67% of our assets are capital-light fee-based products which provides
scale that we will leverage as we grow our Pensions & Savings business,
while annuities are currently c.13% of our assets as we seek to limit credit
risk to a well-diversified proportion of our balance sheet.

·    We have enhanced our Workplace proposition which has improved
existing client retention, thereby reducing outflows and driving new business
inflows through new joiners to existing schemes and increased member
contributions including salary inflation.

·   This has supported a 64% increase in Workplace incremental new business
long-term cash generation to £184m (H1 2022: £112m), with 95% of our new
business coming from our existing clients.

·    In addition, we have recently won c.£3bn of Workplace new scheme
assets that will transfer in 2024 and 2025, and we are currently quoting on a
strong pipeline of c.£3.5bn of new Workplace schemes.

·    We continue to win new clients in a competitive BPA market with our
strong proposition and the Standard Life brand, with £3.2bn of premiums
written in the first half (H1 2022: £1.6bn), at an attractive cash multiple
of 3.4x. In H1 we invested £195m of capital and will continue to be
disciplined with a target annual capital investment of c.£300m.

·    In September, we launched an open market Standard Life individual
annuity, available to new and existing customers.

·    We proudly manage £269bn of assets under administration as at 30
June 2023 (FY22: £259bn).

 

Growing through M&A

·    We completed the acquisition of Sun Life of Canada UK for £250m in
April and have seen good initial integration progress with £46m of cash
generation remitted within the first three months, equating to c.20% of the
purchase price.

·    We have delivered a 3-year payback on ReAssure with £3.7bn of cash
generation received since acquisition (115% of the £3.2bn consideration
paid), with a further £3.3bn of cash generation still to emerge over time.

·    Confident of further M&A opportunities emerging over time and we
have the financial flexibility to fund transactions.

 

Optimising our in-force business

·    Continued to deliver high levels of management actions with £412m
realised in the first half (H1 2022: £421m), reflecting our ongoing focus of
optimising and enhancing our business.

·    The enhanced capabilities we have built in-house, across asset
management and capital optimisation, will enable us to leverage evolving
market dynamics, and deliver a repeatable pipeline of management actions over
the very long term.

·    Further diversified our asset portfolio into North America, with
c.£1.1bn of assets deployed in the region in H1.

 

Enhancing our operating model and culture

·    Progressed our ongoing migrations with c.80% of our digital customer
journeys transitioned onto TCS BaNCS.

·    Executing one of the largest ever insurance Part VII transfers(6),
unifying 4 legal entities and c.7 million policyholders into one entity.

·    Further developed our talent pipeline and launched Phoenix Flex, our
new flexible working policy.

 

Our strategic priorities are informed by, and in support of, our key ESG
themes of: Planet and People

 

·    Planet:

o  Published our Net Zero Transition Plan in May and are on track to meet our
2025 net zero targets.

o  Certified as a signatory to the UK Stewardship Code.

o  c.95% of our H1 illiquid asset origination (excluding ERM) of c.£0.5bn
was into sustainable assets.

·    People:

o  Launched access for Standard Life customers to an innovative integrated
financial wellness hub, Money Mindset, with an intention to reach 1.5m
customers.

o  Reached 4 million people with an awareness campaign on longer lives and
under saving for retirement.

o  Our think tank, Phoenix Insights, advocated for reforms to the state
pension and used new research to encourage businesses and Government to
address economic inactivity amongst older workers.

Key financial targets and guidance

 

·    Cash: now expect to deliver at the top-end of our 2023 cash
generation target range of £1.3bn-to-£1.4bn; on track to deliver our 3-year
2023-25 cash generation target of £4.1bn.

·    Resilience: continue to operate within our target ranges for our SCCR
(140-180%) and Fitch leverage ratio (25-30%).

·    Organic growth: we will deliver further organic growth in 2023 as we
progress towards:

o  Positive Group net fund flows from 2024

o  c.£1.5bn per annum of incremental new business long-term cash generation
by 2025

o  c.£5bn of annual net fund flows in Workplace and c.£2bn in Retail, by
2025

·    M&A growth: continue to assess further M&A opportunities and
confident of our ability to execute transactions.

IFRS 17 transition update

 

No change to strategy, cash generation, solvency or dividend

·   IFRS 17 is a global accounting standard that was implemented on 1
January 2023 and is an accounting change which does not alter the underlying
economics of our business. As a result, IFRS 17 does not change our strategy
or dividend, and we will remain focused on delivering cash and capital.

·  As a result of our successful track record of delivering value-accretive
M&A and subsequent integration activity, c.95% of our business was
recognised at fair value on transition, which results in the establishment of
a lower Contractual Service Margin ('CSM') and also increases the volatility
in our shareholders' equity.

·    IFRS 17 adjusted shareholders' equity (inclusive of the CSM net of
tax) was £5.2bn at 31 December 2022, 24% higher than IFRS 4 shareholders'
equity of £4.2bn.

·    The Group's CSM (gross of tax) at 31 December 2022 was £2.6bn and
this grew at 7% year-on-year in 2022. It represents a significant store of
future profits and is expected to release into the P&L at c.5-7% per
annum.

·    IFRS 17 shareholders' equity was £3.2bn at 31 December 2022, which
is 24% lower than IFRS 4 of £4.2bn, due primarily to £(0.4)bn lower
operating profit as a result of items transferred to the CSM, and a £(0.7)bn
adverse economic impact from increased accounting volatility under IFRS 17
related to our hedging approach and the prudence under IFRS 4.

·    IFRS 17 adjusted operating profit before tax for FY22 was £0.6bn,
which is c.50% lower than under IFRS 4 of £1.2bn. This principally reflects
the transfer of £(0.4)bn of items to the CSM including annuity new business
profits and model, methodology and assumption changes, as well as £(0.2)bn of
items not recognised in adjusted operating profit under IFRS 17, and a
£(0.2)bn lower contribution from With-Profits and Unit-Linked business. All
of which was partly offset by a £0.2bn release of the CSM.

·  Phoenix Group's half year 2023 IFRS financial statements will be
published on Thursday 28 September.

·    The Group has published a FY22 IFRS 17 transition update
presentation, available on our website at:

https://www.thephoenixgroup.com/investor-relations/results-reports-and-presentations
(https://www.thephoenixgroup.com/investor-relations/results-reports-and-presentations)

 

Enquiries

Investors/analysts:

Claire Hawkins, Director of Corporate Affairs & Investor Relations,
Phoenix Group

+44 (0)20 4559 3161

Andrew Downey, Investor Relations Director, Phoenix Group

+44 (0)20 4559 3145

Media:

Douglas Campbell, Teneo

+44 (0)7753 136 628

Shellie Wells, Corporate Communications Director, Phoenix Group

+44 (0)20 4559 3031

Presentation and financial supplement details

There will be a live virtual presentation for analysts and investors today
starting at 09:00 (BST). You can register for the live webcast at: Phoenix
Group 2023 half year results
(https://storm-virtual-uk.zoom.us/webinar/register/WN_rXsfq7kLR8CklAa09OcfQw#/registration)

A link to the live webcast of the presentation, with the facility to raise
questions, as well as a copy of the presentation and a detailed financial
supplement will be available at:

https://www.thephoenixgroup.com/investor-relations/results-reports-and-presentations
(https://www.thephoenixgroup.com/investor-relations/results-reports-and-presentations)

A replay of the presentation and transcript will also be available on our
website following the event.

Dividend details

The declared 2023 Interim dividend of 26.0 pence per share is expected to be
paid on 23 October 2023.

The ordinary shares will be quoted ex-dividend on the London Stock Exchange as
of 28 September 2023. The record date for eligibility for payment will be 29
September 2023.

Footnotes

1.  HY23 pro forma reflecting £450m of cash remittances in July 2023.

2.  Cash generation is a measure of cash and cash equivalents, remitted by
Phoenix Group's operating subsidiaries to the holding companies and is
available to cover dividends, debt interest, debt repayments and other items.

3.  30 June 2023 Solvency II capital position is an estimated position and
reflects a dynamic recalculation of transitionals for the Group's Life
companies and recognition of the foreseeable 2023 Interim shareholder dividend
of £260m. Had the dynamic recalculation not been assumed, the Solvency II
Surplus and the Shareholder Capital Coverage Ratio would decrease by £4m and
increase 0.2% respectively.

4.  The Shareholder Capital Coverage Ratio excludes Solvency II Own Funds and
Solvency Capital Requirements of unsupported With-Profit funds and unsupported
pension schemes.

5.  FY22 restated Fitch leverage ratio is estimated by management on an IFRS
17 basis and reflects the adoption of a market-consistent ratio calculation
methodology. Ratio allows for currency hedges over foreign currency
denominated debt.

6.  Subject to approval by the Scottish and English Courts.

Legal Disclaimers

All information in this announcement is unaudited.

This announcement 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,
ambitions, outlook, guidance and expectations relating to future financial
condition, performance, results, strategy and/or objectives.

Statements containing the words: 'believes', 'intends', 'will', 'may',
'should', 'expects', 'plans', 'aims', 'seeks', 'targets', 'continues' and
'anticipates' or other words of similar meaning are forward looking.  Such
forward-looking statements and other financial and/or statistical data involve
risk and uncertainty because they relate to future events and circumstances
that are beyond the Group's control. For example, certain insurance risk
disclosures are dependent on the Group's choices about assumptions and models,
which by their nature are estimates. As such, actual future gains and losses
could differ materially from those that the Group has estimated.

Other factors which could cause actual results to differ materially from those
estimated by forward-looking statements include, but are not limited to:
domestic and global economic, political, social, environmental and business
conditions; asset prices; market related risks such as fluctuations in
investment yields, interest rates and exchange rates, the potential for a
sustained low-interest rate or high-interest rate, environment, and the
performance of financial or credit markets generally; the policies and actions
of governmental and/or regulatory authorities, including, for example,
initiatives related to the financial crisis, the COVID-19 pandemic, climate
change and the effect of the UK's version of the "Solvency II" regulations on
the Group's capital maintenance requirements; the impact of changing inflation
rates (including high inflation) and/or deflation; the medium and long-term
political, legal, social and economic effects of the COVID-19 pandemic and the
UK's exit from the European Union; the direct and indirect consequences of the
European and global macroeconomic conditions of the Russia-Ukraine War and
related or other geopolitical conflicts; information technology or data
security breaches (including the Group being subject to cyberattacks); the
development of standards and interpretations including evolving practices in
ESG and climate reporting with regard to the interpretation and application of
accounting; the limitation of climate scenario analysis and the models that
analyse them; lack of transparency and comparability of climate-related
forward-looking methodologies; climate change and a transition to a low-carbon
economy (including the risk that the Group may not achieve its targets);
market competition; changes in assumptions in pricing and reserving for
insurance business (particularly with regard to mortality and morbidity
trends, gender pricing and lapse rates); the timing, impact and other
uncertainties of proposed or future acquisitions, disposals or combinations
within relevant industries; risks associated with arrangements with third
parties; inability of reinsurers to meet obligations or unavailability of
reinsurance coverage; the impact of changes in capital, and implementing
changes in IFRS 17 or any other regulatory solvency and/or accounting
standards, and tax and other legislation and regulations in the jurisdictions
in which members of the Group operate.

As a result, the Group's actual future financial condition, performance and
results may differ materially from the plans, goals, ambitions, outlook,
guidance and expectations set out in the forward-looking statements and other
financial and/or statistical data within this announcement. The Group
undertakes no obligation to update any of the forward-looking statements or
data contained within this announcement or any other forward-looking
statements or data it may make or publish.  Nothing in this announcement
constitutes, nor should it be construed as, a profit forecast or estimate.

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