Phoenix sees M&A amid £470bn heritage assets

Phoenix Group-Standard Life office in Lothian Road, Edinburgh

Phoenix Group Holdings plc, the closed life and pension fund consolidator that owns the “old” Standard Life Assurance, said it expects to benefit from further opportunities in M&A consolidation “due to the impact of cost inflation on backbook portfolios.”

Phoenix Group reported IFRS adjusted operating profit for 2022 of £1.245 billion (FY21: £1.230 billion) and an IFRS loss after tax of £1.762 billion.

It said the loss after tax “reflects significant adverse investment variances due to the accounting volatility from our hedging approach and an accounting mismatch from our own pension schemes that have been subject to a buy-in (with an offset in other comprehensive income).”

Assets under administration fell to £259 billion from £310 billion”primarily due to c.£46bn reduction in asset values.”

Total 2022 dividend will be 50.8p per share , up from 48.9p.

Phoenix Group reported £1.504 billion of cash generation in 2022, down from the prior year’s  £1.717 billion but exceeding the £1.448 billion analysts had expected.

The group announced a 2023 cash generation target range of £1.3 billion-£1.4 billion and a 3-year 2023-25 cash generation target of £4.1 billion.

In the outlook section of its 2022 annual results, Phoenix Group said: “Looking forward, it is clear that 2023 will present a challenging economic backdrop. However, our business model is designed to be resilient throughout the economic cycle.

“Our comprehensive hedging approach is designed to protect our solvency capital position from the majority of the market risks we are exposed, while the key areas of structural market growth we are focused on remain attractive.

“In particular, we expect to see a strong year of volumes in the BPA (Bulk Purchase Annuity) market during 2023, with the recent yields increase having improved the funding positions of many schemes, driving increased demand.

“Workplace is also a very resilient business during an economic downturn, with pension contributions being deducted direct from salaries by employers, leading to stable flows through economic cycles.

“Finally, there remains c.£470 billion of UK Heritage assets that we believe could come to market over time and we expect further opportunities for M&A consolidation due to the impact of cost inflation on backbook portfolios.

“All of which means we expect to see continued organic and M&A growth, to support us in delivering cash, resilience and growth, enabling us to pay a dividend that is sustainable and grows over time.

“We are confident in our future growth as demonstrated by setting our first ever organic growth target of c.£1.5 billion of incremental new business long-term cash generation by 2025.”

Phoenix Group CEO Andy Briggs said: “Phoenix has a simple strategy that is focused on the UK long-term savings and retirement market.

“We have continued to make excellent progress across all areas of that strategy in 2022, despite the challenging economic backdrop.

“This has enabled us to deliver a strong set of financial results, with cash generation of £1.5 billion and our resilient balance sheet maintained.

“We have also grown our business both organically, with record new business growth of £1.2 billion, and inorganically, with the cash funded acquisition of Sun Life of Canada UK.

“Our strong strategic and financial performance has therefore enabled the board to recommend a 5% dividend increase for the year.”