Phoenix Group, the zombie fund consolidation company which has attracted the interest of private equity, exceeded all of its 2011 financial targets, but a renegotiation of its debt profile looks a high priority, as finance costs tipped it into the red.
Net income in 2011 declined to £6,490m from £7,543m in 2010, while profit before finance costs and tax dipped to £247m from £280m the year before. Those finance costs are not inconsiderable, however, clocking in at £251m in 2011 and £269m in 2010, which meant the company posted a loss before tax of £4m, versus a profit of £11m the year before. The group has £2.7bn of bank debt.
"The generation of £810m of cash, above the mid-point of our target range, and our improved group capital position reinforces our confidence in our ability to progress discussions with our lenders, as we look to align the maturity of our debt to the profile of our long term cash flows," said Group Chief Executive Officer, Clive Bannister.
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On an international financial reporting standards (IFRS) basis, operating profit before tax grew to £387m in 2011 from £373m in 2010. Phoenix prefers to focus on IFRS operating profit rather than IFRS profit before tax as it believes it provides long-term performance information unaffected by short-term economic volatility and gives an insight into the group's ability to generate cash flows to support dividends. The IFRS operating profit before tax figure also does not show the company making a loss ...
Operating earnings before tax on a Market Consistent Embedded Value (MCEV) eased to £535m in 2011 from £754m the year before. MCEV operating earnings after tax were lower at £394m (2010: £543 million) primarily due to a decrease in the long-term risk-free rate and the non-recurrence of significant positive experience variances in 2010.
Group MCEV - essentially a measure of the present value of future profits added to adjusted net asset value - was more or less unchanged at £2,118m.
The estimated IGD (Insurance Group Directive - a European regulatory requirement designed to ensure insurers keep adequate levels of capital to cope with emergencies) surplus rose to £1.3bn from £1.0bn at the end of 2010. Phoenix said its head-room over its IGD capital policy was £0.4bn. "The head-room over our IGD capital policy allows us greater flexibility in the repayment of our bank debt and we have identified additional actions that will improve this surplus further in 2012," the group said.
The gearing ratio reduced to 46% through organic cash generation, comfortably meeting the group's target of a ratio less than 50%. Gearing is calculated as net shareholder debt as a percentage of the sum of group MCEV, net shareholder debt and the present value of future profits of Phoenix's Ignis asset management unit.
"As in 2010, financial markets in 2011 were volatile and global economic growth was subdued. Given the ongoing pressures in the Eurozone and, in particular, the high sovereign debt of many of its members, I expect this uncertainty to continue during 2012," Bannister revealed.
"Although Phoenix is not immune to further negative developments in the region, we have carefully managed our exposure to Peripheral Eurozone countries, reducing shareholder debt securities held in Peripheral Eurozone sovereign debt to £9m. We are well positioned to react to further changes to ensure policyholder and shareholder investments are secure," Bannister added.
Chairman Ron Sandler announced his intention to resign this year once an appropriate replacement has been found.
The group has recommended an unchanged final dividend of 21p, leaving the full year pay-out unchanged at 42p.
Shares in Phoenix rose 10p to 560p in the first hour of trading after the results were released.
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