Chesnara Plc - Half-year Report
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Operationally and financially resilient
Chesnara's operations, solvency and dividends have all shown resilience to the impacts of Covid-19. Chesnara has continued to deliver positive cash generation, funding the dividend strategy as well as maintaining robust group solvency. Economic Value decreased largely as a result of equity falls in the period, although this was partially offset by foreign exchange gains.
H1 2020 FINANCIAL HIGHLIGHTS
· GROUP CASH GENERATION OF £12.9 M (six months ended 30 June 2019: £13.4M) Note 1
DIVISIONAL CASH GENERATION OF £9.6M (six months ended 30 June 2019: £2.4M) Note 1
The result for the period includes a positive impact from the symmetric adjustment of c£26m. Falling yields over the period have had a negative effect on cash generation.
· GROUP SOLVENCY RATIO OF 162% ( 31 December 2019 : 155%)
We are well capitalised at both group and subsidiary level under Solvency II, with group solvency increasing in the first six months of 2020.
· 3.00% INCREASE IN INTERIM DIVIDEND
The results support the continued growth of the interim dividend to 7.65p per share (2019 interim: 7.43p per share).
· ECONOMIC VALUE (ECV) OF £604.2M ( 31 December 2019 : £670.0 M ) Note 2
Movement in the year is stated after dividend distributions of £20.8m and includes a foreign exchange gain of £29.1m.
· ECV EARNINGS NET OF TAX OF £(74.1)M ( six months ended 30 June 2019: £47.1 M )
The result includes £53.6m of economic losses resulting from investment market movements (six months ended 30 Jun 2019: investment market gain of £85.3m).
· COMMERCIAL NEW BUSINESS PROFIT OF £6.7M (six months ended 30 June 2019: £7.6 M ) Note 3
Scildon has reported a 37% improvement in commercial new business profit over the corresponding period in 2019, increasing market share in both term and individual life markets. Pricing pressures and changes to fee income and rebates continue to suppress Movestic's new business value, with more modest returns of £1.7m.
· IFRS PRE-TAX LOSS OF £(9.1)M (six months ended 30 June 2019: pre-tax profit £66.6 M )
The result includes £25.0m of losses relating to economic market conditions, created by the Covid-19 pandemic, including an impairment of £11.6m to the Scildon AVIF intangible asset. By contrast, economic market conditions created a £43.2m gain during the first half of 2019.
· IFRS TOTAL COMPREHENSIVE INCOME OF £15.1M (six months ended 30 June 2019: £51.0 M )
The 2020 result includes a foreign exchange gain of £21.9m (2019: loss of £3.5m).
· GOOD OPERATIONAL AND FINANCIAL RESILIENCE
The Company's focus has been, and remains, on ensuring that it continues to support its customers and colleagues whilst maintaining its financial and operational resilience.
Chesnara remains well capitalised. Based on the closing market position on 30 June 2020, our solvency cover ratio is 162% (31 December 2019: 155%), after allowing for the payment of a proposed interim dividend of £11.5m (7.65 pence per share) which represents a 3% uplift on the 2019 interim dividend. This dividend will be paid on 13 November 2020 to shareholders on the register on 9 October 2020.
As expected, and in line with our reported sensitivities, market movements up to 30 June 2020 had an adverse impact on our Economic Value.
Despite the challenging circumstances, our operations at both Head Office and our divisions, continue to function effectively. During the first half of 2020, our business continuity plans were implemented and continue to be adapted as the Covid-19 situation evolved. New working arrangements were put in place and the vast majority of our colleagues and outsource partners have been successfully working from home. We continue to assess this situation, with a view to a transition back to office-based working, when considered appropriate and safe to do so. Our risk management and control framework continues to be effective.
New business activity in the Netherlands for the first six months has held up well while Sweden has been impacted by the current environment. The impact is expected to be greater in the rest of the year in both territories, with a corresponding reduction consequently in the capital required to support new business.
John Deane, Chief Executive said:
"The impact of the global pandemic on investment market performance has had an inevitable effect on the results during the first half of 2020. Against the backdrop of equity market falls and further reductions in interest rates I am pleased to report that even after paying the 2019 final dividend, Chesnara's cash reserves and solvency surplus remain largely unchanged compared to the pre-pandemic position.
It is this robustness of solvency and cash that supported the payment of a record 2019 final dividend, and it enables us to increase the interim dividend by 3%.
Our operations have proved to be resilient to the challenges Covid-19 has presented. Our IT infrastructure has supported a near seamless transition to remote working. However, we have seen some impact of Covid-19 on our new business operations, with reduced activity in the first half of the year.
I would like to express my thanks to our staff and business partners for all their commitment and flexibility in dealing with the current environment and their work in previous years which has enabled us to continue to provide our usual high standards of customer service throughout.
We have not furloughed any staff as a result of the pandemic and have not used any other state support packages.
The return to pre-Covid-19 investment market conditions will take some time, but we also believe this will provide us with acquisition opportunities as the market reacts to changing circumstances. In the meantime, we will as ever continue to work hard to ensure positive outcomes for customers and investors."