REG - Phoenix Group Hldgs - Phoenix Group Holdings plc - Trading Update

Phoenix groupAnnouncement

03/12/2020 07:02

RNS Number : 3537H
  
Phoenix Group Holdings PLC
  
03 December 2020
  
 

Capital Markets Day, strong trading update exceeding 2020 cash generation target, and setting net-zero carbon targets
Phoenix Group ("Phoenix"), the UK's largest long-term savings and retirement business, is today hosting a Capital Markets Day for investors and analysts, which will include presentations by Phoenix's management team.



The purpose of the event is to provide greater insight into Phoenix's strategy and financial framework. The presentations will also include a series of deep dives into how its businesses are being managed to deliver sustainable cash, resilience and growth for investors. 



Alongside this, Phoenix today announces a strong trading update with 2020 cash generation ahead of target. 
Commenting on the results, Group CEO, Andy Briggs said:
"Phoenix has continued to perform strongly with full year cash generation of £1.7 billion now complete, exceeding the top end of our target range. Our balance sheet remains resilient, underpinned by our high-quality portfolio of assets and unique approach to risk management, and our shareholder capital coverage ratio of 159% remains robust.  
As we execute successfully against our strategy, I am confident that we will continue to deliver cash, resilience and growth, and therefore sustainable cash generation for investors.
We also recognise that Phoenix has an important role to play in society and today we are announcing our commitment for our operations to become net-zero carbon by 2025 and for our investment portfolio to do so by 2050. Sustainability is at the core of our purpose and reducing our environmental impact will be integral to delivering long-term value for all of our stakeholders."
                                                                                                             
Financial Highlights - Phoenix continues to deliver cash, resilience and growth
Strong cash generation
·    £1,713 million of cash generation1 in 2020 (2019: £707 million) exceeding the upper end of the 2020 cash generation target range of £1.5 billion - £1.6 billion.
Resilient Solvency II balance sheet with increased surplus
·    Solvency II surplus increased by £0.6 billion to £5.0 billion2 as at 30 September 2020 from £4.4 billion3 at 30 June 2020 on a pro-forma basis, driven in part by the successful delivery of management actions. 
·    Shareholder Capital Coverage Ratio4 of 159% as at 30 September 2020 (150% as at 30 June 2020 on a pro-forma basis), at the midpoint of the Group's target range of 140% - 180%.
Robust, high-quality credit portfolio
·    98% of £35 billion shareholder debt portfolio is investment grade; 21% is rated as BBB with only 2% of the portfolio rated as BBB- as at 30 September 2020.
·    Limited downgrade experience to date with only £1.6 billion (4.5%) of bonds in the £35 billion shareholder debt portfolio subject to a downgrade which changed the letter rating, and £148 million of bonds (0.4%) being downgraded to sub-investment grade.
·    99.3% of all contractual cashflows paid on the £9.3 billion illiquid asset portfolio.
 
Growth through Open business
·    £472 million incremental long-term cash generation from new business in the 9 months ended 30 September 2020 (FY 2019: £483 million5) including:
- £300 million from BPA (FY 2019: £235 million);
- £94 million from Workplace (FY 2019: £155 million); and
- £42 million from Customer Savings and Investments (includes Wrap and Retail business) (FY 2019: £59 million).
Further financial disclosures are provided in the appendix to this announcement and all financial results are available in the financial supplement which can be accessed through the following link: 
www.thephoenixgroup.com/investor-relations/capital-markets-day-2020 
 
Phoenix has committed to becoming net-zero carbon by 2050
Phoenix recognises its responsibility in driving forward its commitment to sustainability, and in particular the importance of reducing greenhouse gas ("GHG") emissions and accelerating the transition to a low carbon economy. As such, today we are setting net-zero carbon targets in two phases:
·      Phase 1: Operations: we are committing to ensuring the Scope 1 and 2 emissions of our occupied premises and the Scope 3 emissions from business travel are net-zero carbon by 2025.
·      Phase 2: Investment portfolio: setting a net-zero by 2050 target for our investment portfolio.
We will take into account the best available scientific knowledge in this process. Therefore, in relation to our operations, we will set and pursue a 1.5°C aligned science-based emissions reduction target, with any remaining hard-to-decarbonise emissions compensated using certified GHG removal projects.
In relation to our investment portfolios, where we have the ability to influence the investment strategy or investment solution, we will aim to reduce the emission intensity to net-zero GHG emissions by 2050. This is also consistent with the objective of limiting the temperature rise to no more than 1.5°C above pre-industrial temperatures and is in line with the Paris Agreement and the commitment of the UK Government.             
We will do this by:
·    Increasing our investment in assets that support the transition to a low carbon economy; and
·    Using our position as a significant asset owner to engage with investee companies and promote alignment to the Paris Agreement. We will reduce or ultimately eliminate our exposure from companies that show little progress following sustained engagement.  
 
Presentation 
We will be hosting our live virtual Capital Markets Day for analysts and investors today at 2.00 pm (GMT).
A link to the live webcast of the presentation, with the facility to raise questions, and a copy of the presentation will be available at www.thephoenixgroup.com
You can register for the live webcast at the link below:
https://phoenixgroup.virtualhub.events
A video replay of the presentation will be available through the Phoenix Group website post-event.
 
 
Enquiries
Investors/analysts:

Claire Hawkins, Corporate Affairs and Investor Relations Director, Phoenix Group

+44 (0)20 3735 0575
Media:

Douglas Campbell, Teneo 
+44 (0)775 313 6628
 
Haya Herbert Burns, Teneo 
+44 (0)734 203 1051
 
Shellie Wells, Head of Corporate Communications, Phoenix Group 
+44 (0)203 735 0922
 
 
 
Appendices
Appendix 1: Estimated PGH Shareholder Solvency II surplus




£bn


 


30-Sep-202


30-Jun-20 
Pro-forma3


31-Dec-19
Pro-forma6




Own Funds


 


13.6


13.2


13.0




SCR


 


8.6


8.8


8.6




Surplus


 


5.0


4.4


4.4




Shareholder Capital Coverage Ratio4


 


159%


150%


152%




 
 
Appendix 2: Estimated PGH Regulatory Solvency II surplus




£bn


 


30-Sep-202


30-Jun-20 
Pro-forma3


31-Dec-19
Pro-forma6




Own Funds


 


17.0


16.3


15.5




SCR


 


12.0


11.9


11.1




Surplus


 


5.0


4.4


4.4




Shareholder Capital Coverage Ratio4


 


142%


137%


140%




 
 
Appendix 3: Change in estimated PGH Solvency II surplus




 


£bn


 


SCCR4




PGH Solvency II surplus as at 31 December 2019 Pro-forma6


4.4


 


152%




Surplus emerging and release of capital requirements


0.5


 


9%




Debt raise


0.2


 


3%




Management actions


0.6


 


8%




New business strain7


(0.1)


 


(3)%




Dividend, financing, corporate costs & pension contributions


(0.5)


 


(7)%




Assumption changes


0.1


 


1%




Economic variances and other


(0.2)


 


(4)%




PGH Solvency II surplus as at 30 September 20202


5.0


 


159%




 
 
 
 
Appendix 4: Solvency II sensitivities




 


Solvency II surplus


 


SCCR




 


£bn


 


%




Solvency II base at 30 September 20202


5.0


 


159




Equities: 20% fall in markets


5.0


 


160




Property: 12% fall in values8


4.8


 


156




Rates: 73bps rise in interest rates9


5.1


 


165




Rates: 88bps fall in interest rates9


4.8


 


152




Credit spreads: 120bps widening with no allowance for downgrades10


4.8


 


160




Credit downgrade: immediate full letter downgrade 
on 20% of portfolio11


4.4


 


151




Lapse: 10% increase/decrease in rates12


4.8


 


157




Longevity: 6 month increase13


4.1


 


149




 
 
Appendix 5: Asset mix of total shareholder and non-profit




£m


 


30-Sep-20


 


30-Jun-20
Pro-forma14




Cash deposits


 


5,205


 


5,132




Debt securities


 


 


 


 




Debt securities - gilts


 


7,450


 


7,902




Debt securities - Other Gvnt and Supranational


 


2,560


 


2,672




Debt securities - other liquid bonds


 


20,364


 


21,451




Debt securities - illiquids


 


5,023


 


3,895




Total debt securities


 


35,397


 


35,920




Equity securities


 


103


 


110




Property investments


 


85


 


86




Commercial Real Estate


 


981


 


984




Equity Release Mortgages


 


3,256


 


3,111




Other investments


 


590


 


500




Total


 


45,617


 


45,843




 
 
 
Appendix 6: Sector analysis of bond portfolio, 30 September 2020




£m


 


AAA


 


AA


 


A


 


BBB


 


BB & below and unrated


 


Total


 


%




Industrials


 


-


 


66


 


361


 


1,014


 


43


 


1,484


 


4




Consumer, Cyclical


 


-


 


472


 


356


 


370


 


63


 


1,261


 


4




Tech and Telecoms


 


100


 


257


 


658


 


968


 


-


 


1,983


 


6




Consumer, Non-cyclical


 


221


 


324


 


1,114


 


493


 


-


 


2,152


 


6




Banks


 


794


 


830


 


3,037


 


740


 


36


 


5,437


 


15




Financial Services


 


98


 


354


 


406


 


256


 


29


 


1,143


 


3




Utilities


 


28


 


58


 


2,264


 


1,954


 


-


 


4,304


 


12




Gilts/Sovereign/Supra/
sub-sov


 


1,488


 


8,719


 


386


 


2


 


44


 


10,639


 


30




Real Estate


 


34


 


134


 


2,636


 


449


 


73


 


3,326


 


9




Insurance


 


-


 


552


 


426


 


119


 


22


 


1,119


 


3




Oil and Gas


 


-


 


186


 


302


 


87


 


2


 


577


 


2




Infrastructure


 


-


 


62


 


285


 


1,062


 


20


 


1,429


 


4




Other15


 


32


 


160


 


300


 


51


 


-


 


543


 


2




Total


 


2,795


 


12,174


 


12,531


 


7,565


 


332


 


35,397


 


100%




Total %


 


8%


 


34%


 


35%


 


21%


 


2%


 


100%


 


 




 
Appendix 7: New business




 


Long term cash generation
£m


Gross inflows (on new business)
£bn


Capital strain7
£m




Workplace


94


0.9


8




Customer Savings & Investment


42


2.8


2




Retirement Solutions


300


1.4


116




SunLife


20


0.2


-




Europe


16


0.9


10




Total


472


6.2


136




 
 
Notes
1.    Cash generation is a measure of cash and cash equivalents, remitted by the Group's operating subsidiaries to the holding companies and is available to cover dividends, debt interest, debt repayments and other items. The cash generation figure of £1,713 million represents full year 2020 cash generation.
2.    The 30 September 2020 Solvency II capital position is an estimated position and reflects a dynamic recalculation of transitionals for the Group's Life companies. Had the dynamic recalculation not been assumed, the Solvency II surplus and the Shareholder Capital Coverage Ratio would increase by £0.2 billion and 3% respectively.
3.    The pro-forma position for the Combined Group assumes the acquisition of ReAssure and the novation of equity hedging instruments from the Group's holding companies to ReAssure Assurance Limited took place on 30 June 2020. The 30 June 2020 Solvency II capital position is an estimated position and reflects a dynamic recalculation of transitionals for the Life companies.
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.    FY2019 figures have been restated to include SunLife incremental long-term cash generation of £8 million.
6.    The pro-forma position for the Combined Group assumes the acquisition of ReAssure took place on 31 December 2019. The position reflects a regulator approved recalculation of transitionals as at 31 December 2019 for all Group companies.
7.    Includes £136 million strain from Open new business and £4 million strain on internal vestings.
8.    Property stress represents an overall average fall in property values of 12%.
9.    Assumes the impact of a dynamic recalculation of transitionals and an element of dynamic hedging which is performed on a continuous basis to minimise exposure to the interaction of rates with other correlated risks including longevity.
10.   Credit stress varies by rating and term and is equivalent to an average 120bps spread widening (full range of spread widening is 49bps to 204bps). It assumes the impact of a dynamic recalculation of transitionals and makes no allowance for the cost of defaults or downgrades.
11.   Impact of an immediate full letter downgrade across 20% of the shareholder exposure to the bond portfolio (e.g. from AAA to AA, AA to A, etc). This sensitivity assumes no management actions are taken to rebalance the annuity portfolio back to the original average credit rating and makes no allowance for the spread widening which would be associated with a downgrade.
12.   Assumes most onerous impact of a 10% increase or decrease in lapse rates across different product groups.
13.   Applied to the annuity portfolio.
14.   Asset data as at 30 June 2020 is based on a pro-forma position of the Combined Group, and excludes supported with-profits funds.
15.   Includes Basic Materials, Structure Finance, Diversified, Investment Companies and CDOs.
16.   This announcement in relation to Phoenix Group Holdings plc and its subsidiaries (the 'Group') contains, and we 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 and expectations relating to future financial conditions, performance, results, strategy and/or objectives.
17.   References to the 'Combined Group' are to the Group following completion of the acquisition of ReAssure Group plc.
18.   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.
19.   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 and business conditions; asset prices; market related risks such as fluctuations in interest rates and exchange rates, the potential for a sustained low-interest rate environment, and the performance of financial 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  and the effect of the European Union's "Solvency II" requirements on the Group's capital maintenance requirements; the impact of inflation and deflation; the political, legal, social and economic effects of the COVID 19 pandemic  and the UK's vote to leave the European Union; 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 future acquisitions 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, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which members of the Group operate.
20.   As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals 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 should be construed as a profit forecast or estimate.

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