Phoenix Group Holdings- 2021 Annual Financial Report

Phoenix Group Holdings plc: 2021 Full Year Results    14 March 2022

Phoenix Group announces a record set of financial results for 2021, its first ever organic dividend increase of 3% and a new dividend policy

Financial highlights

Delivering cash

• Record cash generation¹of £1,717m in 2021 (2020: £1,713m) exceeds our £1.5bn-to-£1.6bn target range for the year.
• 2021 cash generation includes c.£400m of integration synergies, with integration synergies to date across the Standard Life and ReAssure acquisitions now in excess of £2.5bn.
• Having met our two conditions for dividend growth, the Board is recommending a 2021 final dividend of 24.8p per share, which includes our first ever organic dividend increase of 3% (2021 total dividend: 48.9p per share).
• Our increased dividend cost of c.£0.5bn per annum remains just as sustainable over the long term with c.£11.8bn of Group long-term free cash available to shareholders (after deducting interest on debt to maturity).

Delivering resilience

• Strong balance sheet maintained with a Solvency II Surplus of £5.3bn²as at 31 December 2021 (2020: £5.3bn³).
• Increased Solvency II Shareholder Capital Coverage Ratio^2,4('SCCR') of 180% as at 31 December 2021 (2020: 164%^3,4); SCCR is currently at the top-end of our target range of 140%-to-180%, which provides significant capacity to invest into both organic and inorganic growth opportunities.
• Fitch leverage ratio⁵of 28% as at 31 December 2021 is within our target range of 25%-to-30% (2020: 28%).

Delivering growth

• Record new business long-term cash generation of £1,184m in 2021 (2020: £766m⁶) means that Phoenix has proved 'the wedge' hypothesis for the first time, with organic growth from our Open business more than offsetting the natural run-off of our Heritage business (currently c.£800m per annum).
• 2021 new business long-term cash generation comprises £950m from our Bulk Purchase Annuities (BPA) business (2020: £522m) and £234m from our capital-light asset-based businesses including Workplace (2020: £244m⁷).
• Record level of BPA premiums contracted in 2021 at £5.6bn (2020: £2.5bn), which is a 124% year-on-year increase, and reflects the investment we have made into our capabilities, with our capital strain reducing to 6.5% (2020: 9%).
• Clear momentum is also building in our Workplace business, with 41 new smaller schemes won during 2021, due to the investment we are making into our proposition and through leveraging the Standard Life brand acquired in 2021.

Other key financial metrics

• Assets under administration increased to £310bn as at 31 December 2021 (2020: £307bn⁸).
• IFRS operating profit increased to £1,230m in 2021 (2020: £1,199m).

New dividend policy

• To better reflect that Phoenix is now a growing, sustainable business, the Board has announced Phoenix Group's new dividend policy and now “intends to pay a dividend that is sustainable and grows over time”.

Our strategic priorities support us in delivering on our purpose and strategy

Optimising our in-force business

• Record Solvency II management actions of £1.5bn in 2021, including c.£700m from a range of 'business as usual' actions, as well as c.£550m of capital synergies from our new harmonised internal model.
• 48% year-on-year increase in illiquid asset origination in 2021 with £3.0bn of new assets originated (2020: £2.0bn).
• Sale of Ark Life completed in November 2021; proceeds of £198m can be reinvested into future growth opportunities.

Enhancing our operating model and culture

• Integration synergies of £824m were delivered in 2021, including £590m realised from the Standard Life acquisition (£1,632m total to date – 134% of target) and £234m from ReAssure (£930m total in just 18 months – 89% of target).
• Female representation in Top 100 leadership positions increased to 31⁹as we improve our gender equality (2020: 21).

Growing our business to support both new and existing customers

• Investment into our Open business capabilities underpinned a strong year in BPA and built momentum in Workplace.
• Having acquired the trusted Standard Life brand, we can now fully leverage it to accelerate future growth.
• Strong customer satisfaction scores maintained at 92%+, exceeding our targets.

Innovating to provide our customers with better financial futures

• Developed a roadmap to transition 1.5m customers and over £15bn of assets into a sustainable default fund in 2022.
• Launched Phoenix Insights – a new think tank set up to inform, debate and catalyse actions across society to enable better longer lives, through a combination of public engagement and high-impact research.

Investing in a sustainable future

• 2021 illiquid asset origination includes £1.3bn of investment into sustainable assets (2020: £788m), with £542m invested into social housing, £364m into healthcare & education and £220m in positive environmental impact projects.
• 34% reduction in Scope 1 & 2 premises emissions intensity¹⁰in 2021; on track for net zero in own operations by 2025.
• Announced ambitious new 2025 and 2030 interim portfolio decarbonisation targets on our path to net zero by 2050.

New targets

• Cash – 1-year 2022 cash generation target range of £1.3bn-£1.4bn; 3-year 2022-24 cash generation target of £4.0bn.
• Resilience– continue to operate within our SCCR target range of 140%-180% and Fitch leverage range of 25%-30%.
• Growth – prove 'the wedge' in 2022 with incremental new business long-term cash generation >£800m, as well as a clear ambition to execute value-accretive M&A with significant opportunities within the c.£480bn Heritage market.

Strategic outlook

Phoenix has a clear and differentiated strategy, which leverages the major market trends, where the whole is greater than the sum of the parts. Our Heritage business will provide our Open asset-based businesses with structural cost advantages through our unique TCS partnership and access to c.13m customers, and our BPA business will benefit from significant capital efficiencies through risk diversification. While for M&A our scalable platform and balance sheet unlock significant cost and capital synergies. We are therefore confident of delivering both organic and inorganic growth going forward.

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

“It has been an outstanding year for Phoenix, with a record set of financial results and significant strategic progress made as we fully embraced our purpose. 2021 marked a pivotal moment for Phoenix, with £1.2 billion of new business from our Open business more than offsetting the run-off of our Heritage business for the first time. This demonstrates that Phoenix is a growing, sustainable business, and enabled the Board to recommend our first ever organic dividend increase of 3%. Phoenix has also today announced a new dividend policy which sets out our intention to pay a dividend that is sustainable and grows over time.”