18th Mar 2015 08:00
LONDON (Alliance News) - Phoenix Group Holdings Wednesday reported a jump in a key measure of operating profit in 2014, bolstered by the performance of the part of the group responsible for managing its life funds.
The closed life fund consolidator said it made a GBP483 million operating profit in 2014, compared with GBP438 million in the prior year, as higher operating profit within Phoenix Life more than offset a fall in that reported by the Ignis operations sold to Standard Life PLC last year.
Pretax profit increased to GBP336 million from GBP268 million as revenue, net of reinsurance payable, rose to GBP5.32 billion from GBP4.22 billion and operating expenses increased to GBP4.71 billion from GBP3.80 billion.
Phoenix uses the operating profit figure because it considers it to be more representative of the business than pretax profit, as it "provides long-term performance information unaffected by short-term economic volatility".
According to Phoenix, group operating profit increased due to "one-off benefits generated from system and modelling improvements of GBP165 million (2013: GBP98 million) and the positive impact of assumption changes compared to the prior year".
Phoenix has been reducing the level of borrowing within the business, selling asset management arm Ignis to Standard Life and restructuring its debt in order to help bring that level down, a process that enables it to make closed life acquisitions and bolster its aim of achieving an investment grade rating. The group said it has begun talks with credit rating agencies to that end.
In addition, the group is preparing for new rules known as Solvency II that will govern insurers across the European Union.
"All of this leaves the group in a sound financial position as we transition to Solvency II, enabling us to focus our efforts on seeking an investment grade rating and growing Phoenix through closed life acquisitions, thereby delivering more value to both customers and shareholders."
However, the uncertainty over Solvency II prompted Phoenix to give further guidance on its financial targets.
"Given the current uncertainty in relation to Solvency II it is expected that there will be some retention of capital in the life companies in the short term. We have therefore set a 2015 annual cash generation target of between GBP200 million and GBP250 million. However, we reiterate the longer-term cash generation target of GBP2.8 billion from 2014 to 2019, of which we have already achieved GBP957 million," Clive Bannister, chief executive, said in a statement.
Operating companies' cash generation fell to GBP567 million from GBP817 million in 2013. Phoenix said this was above the top end of its GBP500-550 million target range. A further GBP390 million was received on the sale of Ignis to Standard Life, bringing full-year cash generation to GBP957 million.
"Having already achieved GBP261 million of incremental Market Consistent Embedded Value in 2014, we are targeting a further GBP100 million of incremental MCEV and therefore raise our 2014 to 2016 target to GBP400 million, up from the original GBP300 million," Bannister added.
Phoenix will pay a dividend of 53.4 pence per share for 2014 as a whole, flat on that paid for 2013.
By Samuel Agini; [email protected]; @samuelagini
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