Phoenix Group Holdings plc

Good morning and welcome to Phoenix Group's full year 2023 results presentation. There will be an opportunity to ask questions. If you are in the room in London, please wait for a microphone. And if you are online, please use the Q&A button on screen. I will now hand over to Andy Briggs, Group Chief Executive Officer, to introduce the session. Andy, over to you.

Thank you Claire and good morning everyone. Good morning to all of those of you in the room here in London and good morning to all of those of you joining us on the webcast and welcome to Phoenix Group's 2023 four-year results presentation. Our presentation this morning has three objectives. First, we'll explain our strong 2023 financial results and the strategic progress we've made. Second, we'll update you on the next phase of our strategic journey as we seek to deliver our long-term vision And finally, we will outline the clear financial outcomes that shareholders could expect as we deliver our strategy. When I joined Phoenix in 2020, the group was firmly established as the UK's leading consolidator of closed life insurance businesses and had just completed two transformational M&A transactions in Standard Life and Reassure. However, Phoenix was, by definition, a business in runoff. And I was given a clear mandate by the board to evolve from having a sole reliance on M&A for growth. We therefore spent the last three years focused on two key areas. Firstly, integrating these acquisitions and delivering significant synergies, some of which we shared with our customers by, for example, capping charges. And this is why our consumer duty provision is only a modest £70 million, as Rakesh will cover shortly. And secondly, we separately built several competitive growing open businesses. Our successful execution has enabled us to prove the wedge hypothesis with the new business cash from our open businesses more than offsetting the heritage runoff. And that means we are today a sustainably growing business no longer reliant on M&A. I'm delighted that we've completed this initial phase quicker than expected, as evidenced by the achievement of our 2025 growth target two years early and the strong annuities and workplace businesses we have built. We're therefore moving to the next phase of executing our strategy. This will see us investing in our business to grow, optimise and enhance as we fully transform into a purpose-led retirement, savings and income business that delivers sustainable cash generation over the long term. We will do this by filling the remaining gaps in our full-service customer proposition by building compelling retail market propositions and developing innovative retirement income solutions. We will also now combine our heritage and various open businesses together on a single group-wide operating model. This will enable us to grow faster by offering all of our customers, whether in an open or heritage product, a seamless journey across their savings lifecycle. And it will support us in becoming even more cost-efficient. And that is why we've evolved our business reporting segments, with our pensions and savings business now comprising our standard life workplace and retail businesses as before, as well as the unit-linked retail business from our former heritage segment. In order to deliver on the next phase of our strategy, we will balance the investment of our surplus cash across our strategic priorities of grow, optimise and enhance. This will be done in line with the new capital allocation framework we are outlining today, which Rakesh will cover in more detail later. Our first strategic priority is to grow. Our investments here will support us in building our retail propositions and enable the continued growth of our workplace and annuities businesses. Our second strategic priority is to optimise. Here we will continue our journey to pay down M&A related debt as we target a 30% SOMC2 leverage ratio and invest in further enhancing asset and liability optimisation capabilities to support recurring management actions each and every year over the long term. Our third strategic priority is to enhance. This will see us complete our remaining migration and transformation programmes and move to a single, more efficient, group-wide operating model. The combination of which will support £250 million of annual cost savings by the end of 2026. Executing on these strategic priorities will, in turn, deliver strong financial performance across our evolved financial framework of cash, capital and earnings. And this investment spend is comfortably funded from the surplus cash available as we deliver substantial cash generation over the next three years. So turning next to what this means for shareholders on slide six. We are today introducing our new primary reporting metric, operating cash generation, which Rakesh will explain in more detail later. Simply put, it is the sustainable level of surplus generation in our life companies each and every year that is then remitted as cash to our group holding company. As we outline today, our strategy will deliver strong growth in operating cash generation over the next three years as we grow, optimise and enhance. With a target of £1.4 billion in 2026, an increase of 25% from today. after which we expect it to then grow at a sustainable mid-single digit growth rate over the long term. Importantly, this operating cash generation more than covers our recurring uses and a growing dividend, leaving excess cash that can support additional investment back into the business and or additional shareholder returns. This means the board can now move to a progressive and sustainable ordinary dividend policy with a clear intention to grow our dividend every year while still maintaining the long-term sustainability of the dividend. We see this as a pivotal step in the evolution of Phoenix's investment case and it's a reflection of the board's confidence in our future strategy. And with that, I'll hand you over to Rakesh who will take you through the strong 2023 financial results. Rakesh.

Thank you, Andy, and good morning, everybody. Our 2023 financial results demonstrate the clear strategic progress we have made over the last three years. We continue to deliver high levels of dependable cash generation and have continued to grow our incremental new business long-term cash. Our balance sheet remains as resilient as ever with shareholder capital coverage ratio towards the top end of our operating range. And our improving earnings reflect the investment we are making with a 13% increase in operating profit and a 10% increase in our contractual service margin. As a result, the Board has recommended a 2.5% increase in the final dividend to 26.65 pence per share. So, turning to the detail on slide 9. At Phoenix, cash generation is the actual cash remitted from our life companies to Group. We have generated just over £2 billion of cash in 2023. This was supported by the Part 7 transfer of Standard Life and Phoenix Life, one of the largest UK insurance Part 7 transfers ever completed, which enabled us to release the previously recognised capital benefit held in our life companies. We have therefore beaten our revised 2023 target of £1.8 billion due to the higher levels of management actions delivered in the year. And with £5.2 billion generated over the past three years, we have over-delivered the three-year target we set in 2021 by £800 million. Turning next to our new business growth. We have increased our incremental new business long-term cash by 23% year-on-year to just over £1.5 billion. We have therefore achieved our 2025 target two years early and so we are replacing our previous growth targets with a new set of 2026 targets that I will talk to later. Our 2023 performance comprises an increase in our capital-like pensions and savings business to £395 million, primarily driven by our success in workplace, while our retirement solutions business remains the largest contributor at nearly £1.1 billion. As a result, our new business net fund flows were up 72% year-on-year to £6.7 billion. driven primarily by our pensions and savings business, which I will explain on slide 11. Our capital-light fee-based pensions and savings business is growing strongly. The investment we have made into our workplace proposition is enabling us to retain our existing schemes and win new schemes in the market. This drives the compounding flywheel effect we have talked about before. New joiners and increased member contributions, including salary inflation, add growth to existing schemes, and together with transferring new schemes, drive the increased revenue that falls straight through to the bottom line. This supported a 59% year-on-year increase in new business long-term cash. and a near doubling of our workplace net home close to £4.7 billion, partly due to the transfer of the Siemens workplace scheme. This was one of the largest workplace scheme transfers in the UK market in recent years. A clear endorsement of the strength of the Standard Life brand. The growth we are seeing in assets and our expanding margins through operating leverage translate straight into our earnings, with a 27% increase in our operating profits year on year. Turning next to Retirement Solutions on slide 12. Our Retirement Solutions business has been competitive in a busy annuities market. New business long-term cash increased to £1.1 billion in 2023, with £6.2 billion of premiums written at an attractive mid-teens IRR. We have further reduced our capital strain in the year to 2.7% on a pre-capital management policy basis. This is supported by our diversified business model and includes the risk margin reduction from the SONTI II reform. This new baseline strain level means we can deliver attractive returns in a competitive market. and it will support our disciplined capital allocation approach going forward. From an earnings perspective, we have seen a 14% year-on-year growth in the annuity CSM due to the new business growth and positive assumption changes, while operating profit grew by 8%. Turning next to capital on slide 13. Our Resilience 22 capital position continues to support investment into our business. with our shareholder capital coverage ratio of 176% at the top end of our operating range. Operating surplus generation is a metric used across the industry. It comprises the underlying operating surplus emerging from our life companies and our recurring management actions. Including recurring management actions is a standard industry practice, reflecting the day-to-day balance sheet optimization we all do to create value. In 2023, our operating surplus generation totaled 1.1 billion pounds. Phoenix also has a long track record of delivering value from one-off efficiency actions and M&A integrations. We consider these to be non-recurring management actions, which therefore fall outside of operating surplus generation. These totaled 400 million pounds in 2023. Our closing surplus was 3.9 billion pounds, and this provides us with the capacity to invest in our business going forward. And, as a reminder, our reported surplus includes the accrual of our final dividend. I wanted to take some time today to talk about management actions. They add value, which means they increase cash, capital and earnings. Over the last three years, we have developed a highly skilled in-house asset management team whose day job is to optimise our assets and liabilities and improve shareholder returns. On this slide, I have shared some examples of the day-to-day actions we undertake each and every year, which includes optimising our £38 billion credit portfolio and delivering enhanced returns on the investment of our new BPA assets. as well as the balance sheet efficiency actions we are more typically known for, such as delivering capital model efficiencies and optimising our hedging. A small yield pick-up on the assets can accumulate into sizeable management actions given the long duration of our business. As you can see on the chart, we have grown the recurring element of our management actions over the past few years to just over £300 million. Looking forward, we expect to deliver a growing level of recurring management actions to around £400 million annually by 2026 as we further invest in our capabilities and grow our business. Turning next to the impact of consumer duty on slide 15. As a retirement and savings income business, we are a provider of products and services and do not provide regulated advice. which is important when thinking about the impact of consumer duty on our business. Phoenix has a strong track record of delivering good customer outcomes with an ongoing program of product and service reviews. And we have provisioned over £200 million over the past seven years to proactively reduce the customer charges. It is important to note that consumer duty is focused on delivering fair value for customers and is not just about charge reductions. Consumer duty was effective on our open book last year with few changes required for compliance and we are on track for meeting the July deadline on our closed book. We have completed our comprehensive review across the whole closed book and have identified some instances where we need to cap charges to deliver fair value where we can improve our customer communications. That is why we have taken a prudent £70 million provision to cover the cost of implementing these changes. We have, as you would expect, engaged closely with the FCA throughout the process. Turning next to IFRS earnings. 2023 has seen the adoption of the IFRS 17 by the insurance sector and an increased focus on earnings. Today we have reported a 13% increase in adjusted operating profit to £617 million. This was driven by a 27% growth in pensions and savings to £190 million, supported by growth in assets and expanding margins. and growth in retirement solutions, which was up 8% to £378 million. The growth in the other Europe segment reflects the higher investment returns on our shareholder funds in 2023. This slide also shows that our non-operating items remain elevated due to the expenditure on the planned group M&A migrations, further IFRS 17 implementation expenses and investment into growth. Economic variances were a small positive, reflecting lower interest rates partially offset by adverse variances from equities. And this has driven the reduced IFRS loss after tax of £88 million. Finishing on the CSM on slide 17. Our contractual service margin, or CSM, is £2.1 billion net of taxed. This represents a significant store of future profits that will emerge over time. On a gross of tax basis, the CSM grew by 10%, supported by strong BPA new business growth, positive assumption changes and the acquisition of Sun Life of Canada UK. The release of CSM into operating profit was around 8% in the year. And over time, we do expect that this to normalise to more like 5% to 7% as annuities become a bigger part of the CSM. Our earnings performance has resulted in a reduction in adjusted shareholder equity to £4.6 billion in the year, with lower shareholder equity partly offset by growth in the CSM. And with that, I will hand you back to Andy for the strategic update.