Phoenix Group 'strong' as it completes Brexit preparations
By Josh White
Date: Wednesday 07 Aug 2019
(Sharecast News) - Phoenix Group announced "strong" results for the six months ended 30 June on Wednesday, although its cash generation fell to £287m from £349m year-on-year.
The FTSE 100 life and pensions consolidator said it expected to achieve towards the upper end of its cash generation target range of between £600m and £700m for the 2019 full year.
It said its Solvency II surplus was £3bn as at 30 June, down from £3.2bn on 31 December, while its shareholder capital coverage ratio stood at 160% at period end, compared to 167% at the end of 2018.
Group operating profit improved to £325m for the first half, from £216m year-on-year, with the board raising the interim dividend by 3.5% to 23.4p.
New business contribution totalled £116m from UK open and Europe, rising from a proforma £100m in the prior period, with Phoenix reporting £250m of incremental long-term cash generation from first half new business, decreasing from a proforma £303m year-on-year, but "enhancing the sustainability" of the firm's dividend, according to the board.
Assets under administration rose to £245bn as at 30 June, from £226bn on 31 December.
Phoenix Group's leverage ratio stood at 23% as at period end, compared to 22% on 31 December, and remaining under the board's target range of between 25% and 30%.
The company noted that a new £1.25bn revolving credit facility was in place.
Looking at its ongoing transition programme, Phoenix Group said it remained on track to deliver the £1.2bn total synergy target for the Standard Life Assurance businesses transition.
A total of £115m of capital synergies were delivered in the first half, taking cumulative capital synergies to £615m against a target of £720m, or 85% of the total goal.
Annual cost savings of £21m had been delivered to date, against a target of £75m per annum, or 28% of the total.
One-off synergies of £17m had been delivered to date, against a target of £30m, or 57% of the total.
On the strategic front, Phoenix Group said its Brexit preparations were "complete", with £250m of capital injected into an Irish subsidiary prior to a Part VII transfer of its European branch businesses, which was completed in March.
Gross new business inflows for its UK open Europe business totalled £3.5bn in the first half, down from £4.6bn year-on-year.
Bulk purchase annuity liabilities contracted in the period totalled £0.5bn in line with the first half of 2018, with a further £0.2bn contracted in August.
Phoenix Group said a £1.1bn buy-in from the PGL pension scheme had been successfully completed, and added that £0.5bn of illiquid assets had been sourced, taking allocation of illiquid assets backing annuity liabilities to 22%.
It said it achieved regulatory approval for two master trust schemes, looking after more than 240,000 customers and £5bn in assets under administration, which the board said would enable the company to access the "rapidly growing" market.
"I am delighted to announce our first half results today, which demonstrate Phoenix's commitment to meeting the targets it has set," said group chief executive officer Clive Bannister.
"Having delivered £287m of cash generation year to date, Phoenix expects to be towards the upper end of the £600m to £700m 2019 target range.
"We also continue to make good progress across all phases of our transition programme and remain on track to meet the £1.2bn total synergy target announced in March."
Bannister said that, while net inflows into its open businesses were down overall year-on-year, reflecting market uncertainty from Brexit and a tail-off in DB to DC transfers, contributions to its auto-enrolment workplace schemes had increased, and new annuity business in its heritage segment had been "strong".
"The £250m of incremental long-term cash generation from this new business in the first half brings sustainability to Phoenix and its dividend.
"The life insurance sector continues to consolidate, and the mergers and acquisitions pipeline remains strong.
"We are ready to do deals that meet our acquisition criteria and I am confident that Phoenix will continue to be the market leader in this consolidation process."
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