The first half of 2010 has been a period of significant progress for Phoenix Group Holdings, culminating in our successful Premium Listing on the London Stock Exchange ("LSE") on 5 July 2010. Since the beginning of the year, we have simplified our capital structure, strengthened our Board and management team, resolved a number of outstanding legacy issues, and delivered strong cash generation in difficult markets, demonstrating the underlying strength of our business model.
A Premium Listing on the LSE is central to the consolidation strategy of the Group. Its achievement represents a major step forward and is the result of many months of intense activity. Preparations for the Premium Listing have been demanding and high on the corporate agenda, but at the same time our life and asset management businesses have also been extremely busy, improving customer service, focusing on the enhancement of policyholder returns and growing third party assets under management.
As Jonathan Moss reports in more detail in his Group Chief Executive’s report, Phoenix continues to generate high levels of cash. Recurring cash flows have arisen as projected and management actions are well on course to deliver our £225 million accelerated cash flow target for 2010.
It is the cash generative nature of our business model that is its core attraction. However, for shareholders to enjoy the benefits of those cash flows, we need to address the restrictions which are currently placed on our dividend as a stipulation of our borrowing facilities with our lenders. Restructuring these borrowing arrangements is, therefore, a high priority, with the objectives of lifting the dividend restriction and securing the level and structure of debt that will support our longer-term growth ambitions. While this may well involve some debt repayment, the absence of new business risk and the predictability of our cash flows can accommodate a higher level of leverage than would be the case for a life company that continues to write new business.
Phoenix enjoys a position as the largest specialist consolidator of closed life funds in the UK. This carries with it great responsibility. We manage almost £69 billion of assets and have six and a half million policyholders, and we apply considerable actuarial, investment and operational expertise to make sure these investments are secure and that opportunities to safely enhance returns are identified wherever possible.
To be the leading specialist in the closed life fund market is also a position of great opportunity. There is a large and growing legacy life sector in the UK that is now effectively closed to new business, with significant amounts of regulatory capital being deployed to support products that are no longer actively marketed to new customers. The closed life sector needs to be safely decommissioned. It is not in the interests of policyholders for all these legacy funds to be run-off in a series of isolated silos. Nor is this an attractive outlook for the operators of these funds, given the impact of impending new regulation, including Solvency II, and the lack of consumer demand for traditional with-profits and unit-linked products. This will undoubtedly provide opportunities for the Group. Our scale, our low cost operating platform and our experience in the acquisition and consolidation of closed life funds can be deployed to provide better outcomes for millions more policyholders and, at the same time, to enhance value for our shareholders.
I have been pleased to welcome four new independent Directors to the Board of Phoenix Group Holdings:
these appointments have broadened the knowledge and expertise available to the Board, which now meets fully the independence recommendations of the Combined Code. Jonathan Yates has been appointed to the Board as Group Finance Director and, in addition, we have strengthened significantly our Group Finance function with several senior appointments.
The UK savings market stands to benefit from a consolidator that can provide better outcomes for policyholders by ensuring the safe and efficient run-off of millions of policies and many billions of pounds of consumers’ savings in traditional life assurance products. Phoenix is already the UK’s largest specialist consolidator of closed life funds and the Group has made enormous strides in the past six months towards being able deliver the further consolidation that the UK savings market needs.
The business is performing well, and as these results show, is generating strong cash flows from its operating businesses. Looking ahead to the remainder of the financial year, I am confident that we will deliver full year cash flows at the top of our £625 million to £725 million target range for combined recurring and accelerated cash flows. We have achieved a great deal in the first half of the year, which would not have been possible without the continuing dedication and commitment of our staff, to whom I offer my thanks.
Ron Sandler
Chairman
26 August 2010