Earnings call: Phoenix Group hits 2025 growth targets early, eyes dividends

Phoenix Group Holdings (PHNX.L) has reported strong financial results for the full year 2023, hitting its 2025 growth targets two years ahead of schedule and outlining ambitious plans for the future. The company has transitioned into a sustainably growing business and is now focusing on becoming the leading retirement savings and income business in the UK.

With an emphasis on enhancing customer propositions and developing innovative retirement solutions, Phoenix Group aims to achieve significant cost savings and robust operating cash generation by 2026. The company also plans to maintain a strong balance sheet and pursue high-return investment opportunities.

Key Takeaways

• Phoenix Group exceeded its 2025 growth targets in 2023.
• Operating cash generation is set to reach £1.4 billion by 2026.
• The company plans a progressive dividend policy with annual increases.
• Cost savings of £250 million are expected by the end of 2026.
• Investment in growth, optimization, and enhancement is prioritized.

Company Outlook

• Phoenix Group plans to invest £100 million over the next three years in growth propositions, focusing on the retail market.
• The company aims for a 50% increase in IFRS earnings to £900 million by 2026.
• A strong balance sheet is to be maintained with a 140%-180% shareholder capital coverage ratio.

Bearish Highlights

• A provision of £70 million has been set aside for Consumer Duty regulation costs.
• Specific breakdowns of nonrecurring management actions and surplus capital levels were not disclosed.
• Questions about the potential sale of European businesses to reduce debt leverage were not addressed.

Bullish Highlights

• Phoenix Group generated over £2 billion in cash in 2023.
• The company increased its incremental new business long-term cash by 23% to over £1.5 billion.
• A resilient Solvency II capital position with a shareholder capital coverage ratio of 176% supports investment plans.

Misses

• The company did not provide specific details on the impact of nonrecurring management actions.

Q&A Highlights

• Phoenix Group is building out asset management capabilities and remains open to M&A opportunities.
• The company is confident in sustaining higher levels of debt leverage compared to other companies.
• A significant portion of customers will be impacted by the Consumer Duty, with compliance ensured through close collaboration with the FCA.

Phoenix Group, a leading retirement savings and income business, has reported a successful year with significant progress in its strategic transformation. The company's strong financial performance has been marked by a 13% increase in adjusted operating profit to £617 million and a 10% increase in contractual service margin to £2.1 billion. Looking forward, Phoenix Group is focused on delivering sustainable growth and attractive financial outcomes for shareholders. The company's strategy is centered on operating cash generation, with plans to develop a platform capability for its smooth managed fund and partner with another firm to rent a platform. Phoenix Group's commitment to delivering better outcomes for customers and its confidence in surpassing targets underscores its robust position in the market.

InvestingPro Insights

Phoenix Group Holdings' recent performance and future ambitions reflect a company in a dynamic phase of growth and transformation. To provide a deeper understanding of the company's financial health and market position, here are some key metrics and insights from InvestingPro:

InvestingPro Data:

• Market Cap (Adjusted): 6.66B USD

• P/E Ratio (Adjusted) last twelve months as of Q4 2023: 27.66

• Revenue Growth last twelve months as of Q4 2023: 166.53%

These metrics indicate a substantial growth in revenue over the last year, which aligns with the company's reported financial success and exceeded growth targets. The adjusted P/E ratio suggests that investors are valuing the company's earnings positively, which could reflect confidence in Phoenix Group's strategic initiatives and future profitability.

InvestingPro Tips:

• Phoenix Group has maintained dividend payments for 15 consecutive years, which may appeal to investors looking for consistent income.

• Analysts predict the company will be profitable this year, supporting the bullish outlook presented in the article.

The InvestingPro Tips highlight the company's reliability in rewarding shareholders and the optimistic expectations for its financial performance. For more in-depth analysis and additional tips, visit InvestingPro at https://www.investing.com/pro/PNXGF. Take advantage of the exclusive offer for readers by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 11 additional InvestingPro Tips available that could provide further insights into Phoenix Group's prospects and performance.

Full transcript - Phoenix (PNXGF) Q4 2023:

Claire Hawkins (NASDAQ:HWKN): Good morning and welcome to Phoenix Group Full Year 2023 Results Presentation. There will be an opportunity to ask questions. If you're in the room in London, please wait for a microphone and if you're online, please use the Q&A button on the screen. I will now hand over to Andy Briggs, Group Chief Executive Officer, to introduce the session. Andy, over to you.

Andrew Briggs: 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. Welcome to Phoenix Group's 2023 full year results presentation. Our presentation this morning has 3 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 U.K.'s leading consolidator of closed life insurance businesses and had just completed 2 transformational M&A transactions in Standard Life (LON:ABDN) 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 3 years focused on 2 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 targets 2 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, optimize 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, optimize 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 optimize. Here we will continue our journey to pay down M&A related debt as we target a 30% Solvency II leverage ratio and invest in further enhancing asset and liability optimization 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 programs 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 3 years. So turning next to what this means for shareholders on Slide 6. 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 3 years as we grow, optimize 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?

Rakesh Thakrar: Thank you, Andy, and good morning, everybody. Our 2023 financial results demonstrate the clear strategic progress we have made over the last 3 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 26.65p 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 VII transfer of Standard Life and Phoenix Life, one of the largest U.K. insurance Part VII transfers ever completed, which enabled us to release the previously recognized 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 3 years, we have over-delivered the 3-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 2 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-light Pensions and Savings business to £395 million, primarily driven by our success in the 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 fund flows 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 U.K. 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 translates straight into our earnings with a 27% increase in our operating profit 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 precapital management policy basis. This is supported by our diversified business model and includes the risk margin reduction from the Solvency 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 resilient Solvency II 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. Phoenix also has a long track record of delivering value from oneoff efficiency actions and M&A integrations. We consider these to be nonrecurring management actions, which therefore fall outside of operating surplus generation. These totaled £400 million in 2023. Our closing surplus was £3.9 billion 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 3 years, we have developed a highly skilled in-house asset management team whose day job is to optimize our assets and liabilities and improve shareholder returns. On the slide, I have shared some examples of the day-to-day actions we undertake each and every year, which includes optimizing 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 optimizing our hedging. A small yield pickup on the assets can accumulate into sizable 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 7 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 pension 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 and Europe segment reflects the higher investment returns on our shareholder funds in 2023. This slide also shows that our nonoperating 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 tax. 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 normalize 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'll hand you back to Andy for the strategic update.

Andrew Briggs: Thank you, Rakesh. It's important to start by saying our strategy is unchanged. We have a single strategic focus to help people secure a life of possibilities, which is why we're building a business that can support customers across every stage of their savings lifecycle from age 18 to 80 plus. We'll do this by offering them the products and services they need as they save for, transition to and secure an income in retirement. And we are the only business seeking to do solely this at scale. Importantly, this market is already huge today with an estimated £3 trillion of stock and it's structurally growing due to an aging population with around £150 billion to £200 billion of annual flows. So a significant growth opportunity, which we are well placed to leverage. Our vision is to become the U.K.'s leading retirement savings and income business and we start with strong foundations that we built over the past few years. Our capital-light fee-based Pensions and Savings business already has around £175 billion of assets and generates just under £200 million of IFRS adjusted operating profit. And this grew over 25% last year as we delivered both growing assets and an expanding margin with the benefits of operating leverage. While our spread based Retirement Solutions business is capital utilizing and highly profitable and we choose to keep it to a small proportion of our total assets currently about 14%. So what do we need to do to get to our long-term vision? Well, we start with the customer and what it is they tell us they need. And it's clear from our research and customer feedback that people need help to understand where they are on their financial journey and solutions to improve their financial futures. To win in this market, we therefore need to offer a compelling customer experience. That means offering the complete range of retirement savings and income solutions with a selection of simple fund investment options supported by strong customer service on a slick digital platform and which is sold at a competitive price. And that requires us to add to the strong capabilities we've already built and evolve our business through building the remaining capabilities required to deliver a truly full service customer proposition. When we do that, we will become the U.K.'s leading retirement savings and income business. Our strategy will deliver this vision organically and means we are no longer reliant on M&A for growth in the way we were when I joined. M&A can add further scale to our business and create shareholder value which is attractive. But the bar for acquisitions is now much higher as we have a range of organic growth opportunities in which to deploy excess cash at very attractive returns. The journey to our vision has required us to build new capabilities. Back in 2020, we had a single core capability which was executing M&A and integrating those businesses and there is still nobody in this industry better at doing that than Phoenix. What we've done over the past 3 years is build a number of sustainably growing organic businesses too. This has seen us acquire and invest in the trusted Standard Life brand and re-establish it amongst customers, corporates and advisors. And we've used that brand to help turbocharge our growth as we built a competitive and capital efficient annuities business followed by a now large and rapidly growing capital-light Workplace business. On top of that, we built a highly skilled in-house asset management capability enabling us to optimize our strategic asset allocation and our third-party asset manager partnerships and to create long-term value through optimizing the £38 billion shareholder credit portfolio. All of which supports our ability to deliver recurring management actions into the long term. The next phase of our strategy is therefore about building on the strong foundations we have developed and completing our full service customer offering. We'll do this by building an innovative range of retirement income solutions and a compelling set of retail propositions supported by digital customer interface with personalized data, guidance and advice. And as I said earlier, we are also now at the stage where we can further simplify our organizational structure to integrating our Heritage and open businesses on to a single group-wide operating model. So turning to the investments we will make on Slide 22. In order to deliver the next phase of our strategy, we will balance the investment of our surplus group cash across our strategic priorities in order to both deliver on our purpose and realize strong shareholder returns. Our first strategic priority is to grow and here we will invest around £100 million over the next 3 years into developing our growth propositions. Most of this will be allocated to developing a range of attractive retail propositions as we build the final pillar of our full service customer offering. There are 2 retail markets we need to target. The first is the advisor market for the 10% of customers who pay for advice at retirement. Here we're bringing together the capabilities of our Retirement Solutions and Pensions and Savings businesses to develop a range of innovative retirement income solutions that advisors can offer to their clients. The second is the direct-to-consumer market for the 90% of customers who do not utilize a paid advisor at retirement and here we need to build the tools to engage and support them. This retail market is huge. Indeed it's around half of the £150 billion to £200 billion of annual market flows that I referred to earlier. And with 1 in 5 U.K. adults already a Phoenix Group customer, I'm really excited about the opportunity to further accelerate our growth in line with our purpose. Alongside very strong growth in our capital-light Pensions and Savings business, we will continue to grow our annuities business to take advantage of the strong demand from corporates and consumers in this market. But we remain focused on delivering balanced new business growth and keeping annuities to a small proportion of our balance sheet. And due to the success we've had in achieving our BPA capital strain target of less than 3% 2 years early, we are now choosing to invest less capital going forward with around £200 million of capital annually enabling us to broadly maintain our current volumes. This combined investment will support us in delivering sustainable mid single-digit growth in operating cash generation over the long term. Our second strategic priority is optimize. Here we plan to continue our approach of repaying MLA related debt with surplus cash with at least £500 million of debt repayment by the end of 2026 on top of the £800 million we have repaid since 2020. This will support us in getting to our 30% Solvency II leverage ratio target. And with our cost of capital elevated at present, it delivers strong risk-adjusted returns when compared to other immediate growth opportunities. We will also invest around £100 million to further develop our capabilities in asset and liability optimization. This includes direct origination of liquid and illiquid credit and further investment into our modelling systems and capabilities. And this will support us in delivering increased recurring management actions over the long term with around £400 million per annum expected by 2026. Our third strategic priority is enhance. Here our focus is on delivering our remaining migration and transformation programs as well as integrating our businesses on to a single group-wide operating model to realize additional cost efficiencies. We will therefore invest around £500 million into our group migration, transformation and cost efficiency programs over the next 3 years with around £300 million of this being costs that we previously guided to. And our continued focus on cost efficiency means that we now expect to be able to deliver £250 million of annual cost savings by the end of 2026, which will enhance all of our key reporting metrics as Rakesh will outline shortly. We're already cost efficient today and these additional cost savings will further strengthen our competitive advantage. And finishing with what all this means for our shareholders on Slide 23. As I said in my introduction, operating cash generation is our new primary metric. This is the sustainable level of cash generation from our life companies, which funds our recurring group uses and pays our growing shareholder dividend with excess cash to spare. We are targeting strong growth in operating cash generation of 25% over the next 3 years as we grow, optimize and enhance our business. After which, we then expect it to grow at a mid single-digit growth rate over the long term. And this sustainably growing operating cash generation is what now gives the Board the confidence to move to our new progressive and sustainable ordinary dividend policy with a clear intention to grow our dividend every year. I'll now hand you back to Rakesh, who will talk you through the financial outlook in more detail. Rakesh?

Rakesh Thakrar: Thanks, Andy. We are today introducing a new capital allocation framework that will support the next phase of our strategy. There are 2 key underpins to our framework. The first is that we will operate a progressive and sustainable ordinary dividend policy. And the second is that we will maintain our strong and resilient balance sheet with a 140% to 180% shareholder capital coverage ratio operating range. Andy has already outlined a clear set of priority investments that we will make over the next 3 years balanced across our strategic priorities of grow, optimize and enhance. We believe this is the best allocation of our capital to both deliver attractive returns for our shareholders and deliver on our purpose. Surplus capital that is available over and above these investment priorities will be allocated to the highest return opportunities. This could include investing more into growth, further deleveraging, M&A or share buybacks. We expect to deliver £250 million of annual cost savings by the end of 2026, which are broadly split into 4 buckets as outlined on this chart. Almost half the savings are ongoing migration and transformation cost savings that we expect to be realized over the coming years. The other half is new and comes from product and supplier rationalization and organizational and governance simplification. This is the work to integrate our businesses on to a single group-wide operating model that Andy mentioned earlier. Over time these cost savings will flow through to all our key metrics across the financial framework of cash, capital and earnings. We expect around half of the cost savings to benefit operating cash generation and solvency capital as most of the ongoing migration and transformation savings have already been reserved for. And our operating profit will benefit from the majority of the £250 million as the savings are delivered. We are today introducing our evolved financial framework that focuses on the 3 financial outcomes we deliver for our shareholders: cash, capital and earnings. Phoenix has always managed its business for cash and capital, but we have evolved our key metrics to provide clearer line of sight to the underlying business performance and more comparability with peers. We are also elevating the importance of IFRS earnings in our framework following the transition to IFRS 17. And we are today setting our first-ever IFRS earnings target with a target of £900 million in 2026, a 50% increase. As Andy explained earlier, we are introducing operating cash generation as a new metric to demonstrate the long-term sustainability of our business model. Our operating cash generation includes the ongoing surplus emergence that is created in our life companies comprising the margins we earn on our products and the release of the solvency capital requirements. On top of that and in line with standard industry practice, we include our recurring management actions which, as I outlined earlier, are the sustainable actions that we will generate year-in, year-out into the long term. There is also a cash contribution from the release of the capital management policy that we hold in our life companies. Nonoperating cash generation comprises other management actions that we do not define as recurring such as our M&A integration synergies as well as the release of historic excess capital that has built up in our life companies over time. The 2 added together make up the total cash generation, which in 2023 was £2 billion. We are confident in delivering sustainable growing operating cash generation and so we thought it would be useful to show the evolution of this metric through a familiar diagram. As you would expect from a growing business, the cash emergence from our future new business will continue to more than offset the in-force business runoff. On top of that, we expect to grow our recurring management actions to around £400 million by 2026 supported by the investment in our capabilities and ongoing business growth, which means that our operating cash generation will sustainably grow over the long term and we will accelerate that growth over the next few years through our cost savings program. We also wanted to address the feedback we have received by sharing some new cash emergence disclosure in the appendices to this presentation, which includes the timing profile of our 2023 in-force and new business cash emergence. I just wanted to explain in more detail the investments we are making into our strategic priorities to drive a 25% increase in operating cash generation over the next 3 years from £1.1 billion in 2023 to a targeted £1.4 billion in 2026. We will deliver this through a combination of grow, from our Retirement Solutions and Pensions and Savings new business; optimize, from the delivery of increased recurring management actions with £800 million annual increase expected by 2026; and enhance, from the benefit of around £125 million of cost savings I mentioned earlier. We expect to see progress every year with a bigger step-up in 2026 as the full cost saving run-rate benefits emerge. Importantly, operating cash generation more than covers our recurring uses and annuity capital allocation as well as our growing dividend and generates excess cash, which can support reinvestment into the business and/or additional shareholder returns. So moving next to total cash generation. While operating cash generation is our primary metric, total cash generation remains important as we invest in our next phase of our strategy. We expect to continue delivering high levels of total cash generation with a 1-year target of £1.4 billion to £1.5 billion in 2024 and a 3-year target £4.4 billion. So looking next at our uses of this cash on Slide 32. Of that £4.4 billion target, we expect around £3.7 billion to come from operating cash generation. This will more than cover our recurring uses that include a growing dividend, operating costs and debt interests as well as our planned investment of around £200 million into annuities each year reflecting our lower strain. This means we will be generating surplus cash on an operating basis over the next 3 years, which together with nonoperating cash generation of £700 million provides us with a significant surplus that we can invest across our strategic priorities as we have already outlined. And as a reminder, around £300 million of the migration, transformation and cost efficiency spend is the remainder of the integration costs we have already previously guided to. The investment spend is more front-end loaded, but the phasing of our 3-year cash generation comfortably allows for this. Our HoldCo cash position is a healthy £1 billion today providing us with the financial flexibility. We expect this to remain broadly consistent over the 3-year period. So looking at leverage on Slide 33. We manage our leverage position by balancing against capital and liquidity and then considering a range of factors. This includes our cash interest cover, the interplay of our balance sheet hedging and our capital tiering headroom. It also includes a number of output metrics such as the Fitch leverage ratio and the Solvency II leverage ratio. Our approach to leverage has always been to gear up for M&A and then pay down that debt with the surplus cash as it emerges and over the past 3 years, we have repaid nearly £800 million of debt. Despite reducing our absolute debt levels, our Solvency II leverage ratio has increased from 31% in 2020 to 36% today. This is due to the impact of higher interest rates on our own funds, which we do not hedge as our hedging strategy is designed to protect our surplus and therefore our dividend. We plan to continue repaying M&A related debt with surplus cash and therefore want to issue clear guidance today of our intention to repay at least £500 million of debt by the end of 2026. We expect to repay the £250 million Tier 2 Bond that is callable in June subject to regulatory approval and will look at further repayment opportunities across 2025 and 2026. This will support us in getting to around 30% Solvency II leverage ratio by the end of 2026 on a regulatory basis., which is a steady-state level that we feel is appropriate for our business absent M&A. This debt repayment will reduce our Solvency shareholder ratio by around 10 percentage points all other things being equal and we will therefore remain comfortably within our operating range. And of course if we choose to prefinance any future calls or maturities, then our deleveraging path may not be fully linear. Turning next to our IFRS earnings slide on 35. The transition to IFRS 17 means the market is placing more weight on insurers' IFRS earnings. So let me explain how our earnings will evolve over time. The investment we are making across our strategic priorities will support growth in adjusted operating profit. We are targeting £900 million of IFRS adjusted operating profit in 2026, a 50% increase from today delivered through a combination of grow, from continued new business growth in Retirement Solutions and Pensions and Savings; optimize, from the delivery of increased recurring management actions over the long term; and enhance, through the benefit of the majority of the £250 million cost savings we expect to deliver. As I explained earlier, we have an elevated level of nonoperating items at present. But once we are through the investment phase over the next 3 years, these will normalize as outlined on the slide. Our shareholders' equity will decline over the coming years, however, we expect it to remain positive over the long term. Most importantly, we believe that adjusted equity inclusive of the CSM is a far better measure for life insurance companies in an IFRS 17 world rather than shareholder equity. And we expect our adjusted shareholders equity to remain broadly stable near term and then begin to grow supported by strong future CSM growth from our annuities business and future management actions. So to conclude with the financial outcomes for shareholders. We are embarking on the next phase of our strategy to deliver on our vision as we balance our investment to grow, optimize and enhance our business. We will deliver a clear set of financial outcomes for our shareholders, including £1.4 billion of operating cash generation in 2026 that will then grow at mid single-digit growth rate over the long term and which is underpinned by our other targets we have set today across our evolved financial framework of cash, capital and earnings. With that, I will now hand you back to Andy for the summary.

Andrew Briggs: Thanks Rakesh. So let me summarize. We have a crystal clear vision here at Phoenix. We want to become the U.K.'s leading retirement savings and income business. We're therefore on a journey as we transition from being a consolidator of closed life insurance businesses to a sustainably growing purpose-led retirement savings and income business. And we've made significant progress in executing our strategy to date as our strong 2023 financial results demonstrate. Looking forward, we have surplus cash available to invest to deliver the next phase of our strategy and so we're balancing our investment across our 3 strategic priorities as we grow, optimize and enhance our business. This investment delivers attractive financial outcomes for our shareholders with sustainable growing operating cash generation over the long term that more than covers our recurring uses, which gives the Board the confidence to move to a progressive and sustainable ordinary dividend policy with a clear intention to grow our dividend every year. Phoenix has transformed significantly over the past 3 years and we're excited about the next phase of our evolution as we journey towards our ambitious vision. And with that, we'll move to questions.

A - Andrew Briggs: So we're going to start with questions from the audience in the room. If you can raise your hand and we will direct 1 of the roaming mics to you. Please can you start by introducing yourselves and the institution you represent. For anyone watching on the webcast, please use the Q&A facility. We will come to your question after we've answered those in the room. So let's kickoff. I think we started at that end last time. Let's start this end now. Andy?

Andrew Sinclair: Andy Sinclair from Bank of America. Three from me as usual, please. First, it was just on M&A. I know we've talked a lot about organic today, but just feels like M&A is maybe a little bit less prominent in the story. Just thinking about that going forward, where does that sit? And when you're looking at M&A, would that be funded by cash, by debt, by equity given the slight amendments to your framework today? Second was just on shareholders' equity. You've said it will remain positive good news. But can you give us a little bit of color in terms of that in terms of what have you assumed for the economics, which have had a big impact over the last few years and roughly when do you think shareholders' equity would trough? You've given kind of total comprehensive equity that is about now, but what about shareholders' equity? And third was just thinking about with profits. Just wondering how you can use that. I mean you've got some big with profit funds within the business. Any opportunity to weaponize that and use that to support some of your growth rather than just annuities and unit-linked type savings?

Andrew Briggs: Sure. So I'll take the first and the third and then Rakesh will take the second. So on M&A, what's changed here is that we now have really strong organic growth within the business and so we're no longer in a position where M&A is our sole route to growth, but it's also raised the bar because we've got lots of places we can deploy excess cash to generate attractive returns. Just to give you 1 example. We say we're investing £100 million into building out our asset and liability optimization capability through Mike's team and that's going to deliver £100 million per annum of recurring management actions so that's a 100% return. If I can find an M&A deal that does that, I'd very happily do it. But we've got a higher bar around M&A, but M&A still remains something that we're interested in. There are a finite number of books in the market overall. We've got a long track record of delivering a lot of value from M&A. We're really good at it and I continue to build strong relationships with all the players in the market that have existing books. We'd still be the first point of call for anyone that was considering an M&A deal. We do think we have good financial flexibility going forward and M&A at attractive returns would still be very attractive to us. I think on the third one in terms of with profits. So we've actually recently launched a smooth managed fund with 1 particular platform and network in the media the other week. We're doing it on a very slow to build up basis, but really optimistic about the outlook and the feedback we're getting on that smooth managed fund. And in time we would consider potentially using the profit funds as a means of delivering. So basically in the U.K., consumers currently largely get offered a fully exposed investment fund or a traditional U.K. style annuity locking into relative low interest rates for the long term. What they want is something in the middle ground, which is exactly where that smooth managed fund proposition is playing and we're really optimistic about that being a key leg of our retail growth. The other area with profits we're looking at comes into that product simplification that we talked about on the cost reduction side. We have I think 22 different with profit funds and we think there's a real opportunity to simplify all of that down. Rakesh, do you want to pick up the shareholder equity question?

Rakesh Thakrar: So shareholder equity remain positive in the future. So how do I see this? So you see operating profit growing, we mentioned it'll get to £900 million. It will continue to grow thereafter. You've just seen some of the numbers today on Pensions and Savings, which is all our items outside of IFRS 17, you've seen that grow from £150 million to £190 million. We continue to see growth on the annuity side. So we'll get to £900 million and that will continue to grow thereafter. The nonoperating items will reduce because of the fact that a lot of the investments we are making will go down to almost close to 0 after 3 years we made those investments. And the third element is we continue to see the CSM growing as well. Now in terms of the economics, we've been impacted by higher rates. So once rates go back to their normalized levels, that will be getting back to providing a benefit. But even absent of any changes in economics, we'd expect the shareholder equity to be positive.

Andrew Briggs: Rhea, why don't we be easy with the microphone and move along.

Rhea Shah: Rhea Shah, Deutsche Bank. Three questions for me. The first one is around flows. You used to have an aim of getting to positive group net flows from 2024 onwards compared to the minus £3 billion in 2023. Is this still achievable and where would it be driven from? Would it be mostly Workplace related? Secondly, kind of going back to Slide 21 where you talk about the retirement income solution, the market propositions and kind of going more into digital as well with guidance and advice. Can you provide some more color around this? And going back to Andy's question on M&A, would you consider looking at M&A to grow these propositions as well or would it all be internal building? And then third on the dividend, you've got operating cash generation growing around 8% per annum if we just go from 2023 to the 2026 target and then you've got that growing mid-single digit per annum after that. How should we think about the progressive dividend policy compared to that level of growth?

Andrew Briggs: Okay. I think they're all 3 for me. I normally split them about a bit more than that. So on the first one, we remain very confident we will get to overall fund flow positive. But I have to say our overall kind of thinking here would be we've set out very broad comprehensive range of targets. They are focused on value rather than volume and that's our primary focus in the business. But we are confident over time we will get to positive net fund flows. Just to give a bit more color on the retirement income side. So the way to kind of think about this is roughly 10% of the population who have roughly half of the assets will pay fees for advice and advisors do a great job for those clients. And what we need to do is to have the right propositions for those advisors to advise their clients on. And then the smooth managed fund I talked about earlier is a great example of that. We're really optimistic to get the right proposition in that space and ultimately you see several billions of fund flows come each year from that type of proposition. So Tom and the guys are doing a great job on that. We're really optimistic. We are doing it in a considered way and platform and advisor by advisor. So don't expect it to be enormous in the numbers this year. But if I look over the 3 years, we'd expect very strong growth. The other 90% of the population that have the other half of the assets don't pay fees for advice at retirement. And the key point here is 1 in 5 of them are Phoenix Group customers and ultimately they need someone to turn to to help them think about. They end up with multiple Workplace pension pots through their lifetime and they need to turn to someone to help them consolidate those pots together and develop a plan into retirement income. So what we're building out there is much more the front end, the digital capabilities of the front end, the ability to engage those customers, to offer them personalized data and information. We're right in the thick of the FCA's review of financial advice. We will build an advisory capability. But before we start to worry about that too much, it will be entirely salary based. There'll be no variable remuneration involved at all. Every single journey will be digitized as part of that with an advisor helping customers. So we've got the track record of everything. And our view is ultimately those customers will turn somewhere to help to think about consolidating their pots and that's where we're focusing the development of our capability. So on the dividend, so we've moved to a progressive and sustainable ordinary dividend policy and that very much reflects the Board's confidence in the organic growth strategy of the business going forward and I think it's a real pivotal moment for the group. That dividend increase is 2.5% this year. That's the same as the organic element of the dividend increase last year. And the reason for that is we have lots of opportunities to deploy capital at really attractive returns and it just gives us greater financial flexibility. Going forward from here, the Board will make a decision on the level of future dividend increases each year based on a range of factors and that will be a judgment the Board makes at the time. Should we carry on to Dom?

Dominic O’Mahony: Dominic O'Mahony, BNP Paribas (OTC:BNPQY) Exane. Thanks for the new plan and the explanation, really very helpful indeed. Look forward to getting stuck into the numbers. Just 3 questions. Firstly, just on the annuities business. So a reduction in the expected strain. Clearly the strain per pound of premium has fallen dramatically, which is very helpful. Should we expect that the contribution to lifetime cash will be lower versus the 2023 levels for annuities from here? Second question, I wonder if you might just give us a little bit more color on the recurring management action side. Clearly in the way you guys think about it, there's a recurring element and a nonrecurring element. Management actions sound often to us like almost by definition nonrecurring. I wonder if you might just flesh out why you're confident that that can just keep going? And then the last point, just on the beyond 2026 mid-single digits, very confident statement. I would hypothesize the bulks market will start to slow down in the latter half of the decade. Clearly by the time we get to 2026, we'll have written a fair amount of business. That slowdown I guess would be a headwind to growth. What gives you confidence of a mid single-digit growth even beyond 2026?

Andrew Briggs: Sure. So I'll take the first and third of those and Rakesh will take the second. So in terms of the annuities, we are really pleased with the job the team have done of improving the capital efficiency. It obviously means that a certain amount of capital will go that much further. We do expect that the volumes we write will be broadly similar to what we've done historically and we're really focused here on return on capital against the financial framework measures. So I'm not saying we'll never ever talk about undiscounted cash again, but we've had a clear message from the market. What's the level of sustainable cash year-by-year? And we're focusing on growing that operating cash generation each year going forward. In terms of the point about beyond 2026, I mean that really comes down to Pensions and Savings. I mean personally I think I might just quickly talk about bulks. You've got £1.5 trillion of assets in the U.K. in defined benefit schemes. I've never met a single finance director that's pleased to have it. Over £1 trillion of that is well advanced on the journey to buyout. They want to get rid of it. Last year the market grew substantially to about £50 billion. So I think there's a lot of years left if you're going to get through £1 trillion, a lot of years still to go of BPA. But having said all of that, the reason we're really confident is the Pensions and Savings side and just to kind of quickly showcase that all again for you because it's the first time we've introduced that as a holistic segment. So we've got £175 billion of assets, £190 million of operating profit. The operating profit was up 27% year-on-year and that was a combination and not far off equal measure of growth in assets through the strong Workplace growth and growth in expanding margin because we're benefiting from operating leverage. So the Workplace business we're bringing on board is really accelerating that operating profit growth. Now we're doing that largely based on Workplace. The retail market is twice the size of that basically the Workplace market. And so that's why we're really confident with the investment we're making into retail, with the structural advantages we have with 1 in 5 adults in the U.K. that we can really accelerate that growth into the long term. Rakesh, do you want to pick up on the recurring management actions?

Rakesh Thakrar: Yes. So we built the capability in our organization with Mike and the asset management team. If you actually look back and you probably know -- many of you know if you look back in history at the management actions, this has been year-in, year-out for us. But where we've got the additional confidence in is where it's coming from. So we've identified what they are at the start of the year so we know exactly what we are doing. And you can think about them as balance sheet actions and liability side. So on the balance sheet side, trying to -- you're having the ability to directly originate liquid assets and that's huge. Also just having the ability to move up where it just increase your risk-adjusted yield because of the long duration of the asset portfolio, a small change in just getting an uptick in the risk-adjusted yield staying on the same credit curve can make a substantial impact because you're talking 10, 15 years, sometimes 20 years. That has a huge impact. And then you think other actions that we do. So for example a regular item is ERM securitizations. Each year we have to redo the securitization because we get excess cash securitized, get more value coming through. It's an ongoing item. And then you look at the liability side as well so you're looking at making sure we're always hedged the right way, minimizing our SCR, et cetera. So when you bring that together, that gives me confidence that we've got this element that is recurring year-in, year-out. And on top of that, you get these oneoff items as well and when you add that together, as you know, that's what's driven our £2 billion cash generation in 2023.

Andrew Briggs: Nasib?

Nasib Ahmed: I've got a good segue on to from what you just said, Rakesh, on Dom's answer. The £400 million recurring management actions, it seems like they're mostly BPA related and it seems like on your pricing basis, you're putting in a little bit of prudence and getting some of that back. Why not just put it into the pricing basis and get your strain a little bit lower? And if you have the number at hand, what would your pricing strain look like if you had those management actions already baked in, hedging liability and asset optimization already baked in into your pricing basis? Secondly, on the operating IFRS 17 profit growth, it seems like if I add £250 million to the £617 million, I get to around £900 million. So there's not any other growth in there. Am I missing anything there? And if you look at the net profit, can you give us a number on that? I've calculated about £600 million by 2026. And then finally, on the advice guidance review by the FCA and you kind of mentioned a little bit about that, but is there a preferred outcome? So there's 3 scenarios that they're looking at. Is there a preferred outcome from a Phoenix perspective that would be more beneficial for you?

Andrew Briggs: Sure. So I'll let Rakesh take the first 2. I'll take the third one. So we're working very closely. I mean I do think it's -- I really worry that only 10% of the U.K. population get advice on the journey to and through retirement. We've got to do better as an industry and help more people on that journey. And so I'm not going to get the terminology completely right, but what was the middle ground one we're excited about. What was it called? Anyone? That's it. Targeted support. We're very excited about targeted support and we think that will be really beneficial. And I think as part of that, just building personalized data into this I think would really help customers. So it's not just some generic thing they're getting, it's something more specific to them. Also at the moment the proposal is that simplified advice is just for ISAs and we think that should include decumulation as well. So I'd say we're very positive about what's in there. We would like simplified advice to extend into decumulation opportunities as well and ultimately just help more people get their heads around it. So people end up with multiple Workplace pension pots from different places they worked during their lives. They get into their late 40s, early 50s and they need help. And 1 in 5 of our customers are Phoenix and we're determined to help them. It's core to our purpose, but it's also a significant commercial opportunity as well. Do you want to take the other 2 questions, Rakesh?

Rakesh Thakrar: Yes. Sure. So the first one, so I think the question was around what's in our pricing basis versus management actions. We take a view on what's appropriate from a pricing basis and we will use that. And then I would look to my asset management team and saying, actually now you've got to over-deliver on those year-in, year-out and certainly that's how we think about it. So our pricing basis is what's appropriate to manage the business with and then we look to do better. But you got to remember so those opportunities also arise because as our business runs off, we'll get the churn in the assets and when new BPAs to come on, then you'll get that constant churn to give you additional opportunities. It's not always right to put it all on the pricing for that. We've got a separate team focusing on that. And the direct origination is again focused on adding additional value over and above that growth. The second bit was on the operating profit. So the way I think about going from £600 million to £900 million aligns to the way of our priorities; growth, optimize and enhance. So we will see growth and you've seen the growth in pension and savings, that will continue. You've seen the growth in Retirement Solutions. We've got a future stock of profit already in the CSM because most of that CSM relates to annuities. That will also emerge over time. So you've seen that. Then you've got the optimize where it's the fact that we're looking to increase those recurring management actions and if they're value accretive, they will be going there as well. And then the third, the biggest important part we talked about is the cost savings where I've said majority of that £250 million by the time we exit 2026 will come through in operating profit during that run rate. So then looking I think below the line items and clearly I can't say what that number is going to be afterwards. But what I will say is that nonoperating items will drop as our investment comes to an end over the 3 years. Given the deleveraging we're doing, that will ensure that our debt interest costs are not increasing certainly and are broadly flat. Recognizing the increase in rates currently in any future refi, but we'll be expecting to be broadly flat on that. And you know that our amortization of intangibles runs off at 8%. Clearly on economics, you can take a view. We know we're at elevated interest rate levels given the long-term rate currently, but that's not for me to comment on.

Andrew Briggs: Farooq next. We will get to you, Andrew. We'll come along 1 by 1. I'm smiling to myself here because Farooq said to me outside that that IFRS target, I think you said 34% above what you were or 37% above what you had. But for Nasib, it's not quite high enough. So we can't please all the people.

Farooq Hanif: Maybe you're not a good modeler. So Farooq Hanif from JPMorgan. Just going back on IFRS, I mean that pension and savings result is a massive growth. So I'm thinking about the economics, you have an upfront cost obviously, which you can't DAC. You have ongoing costs and then you're getting recurring fees on a bigger asset base. It just seems to me that that dip on AUM is going to increase. How do we think about modeling that? I mean can you give us some sort of steer on if you have £10 billion more or £1 billion more of assets, what the flywheel effect actually is in numbers? And then allied to that, doesn't it make sense for you to buy a Workplace pensions book if it consolidates, if other unprofitable businesses out there, many of them you can see are not making money in this. Doesn't a plug-and-play make a lot of sense for you in Workplace pensions? And then third question for Mike and all just what does direct origination mean in illiquid and liquid credit? I mean I get liquid credit, but what does direct origination in illiquid credit actually mean?

Andrew Briggs: Okay. So I'll sort of take the second and third and let Rakesh take the first. Although we do have -- Rakesh is running a lunch next week with the analysts to do a deep dive around a lot of the modeling in this. So he may well want to pick up some of the modeling questions there. So in terms of buying Workplace books, I mean absolutely is something we would consider. We've got a very clear capital allocation framework here. We're looking to allocate capital where we can get the highest returns. If there's high returns from doing something that's consistent with our purpose and strategy, we will look to do it and Workplace books would be a potential option there. In terms of the question on direct origination. So up until sort of very end of last year, every single pound of our £280 billion of assets we invest on behalf of our customers was being done with a third-party asset manager. So we're kind of paying fees on everything to the third-party asset managers to do that. What we can now do is -- and what we've been doing on illiquid assets is basically doing that on a nondiscretionary basis. So Mike and the team have been making the investment decisions, but then paying 25 basis points to 30 basis points to a third-party asset manager to run it for us. So we now could administer that in-house and obviously financially that can be very attractive. It's part of what will drive these recurring management actions. What we're doing this year is doing that same capability on liquid credit so we've got the ability to run the liquid credit in-house as well. So we've got no plans to go beyond credit. I should be very very clear. This is only U.K.-based credit as well in both cases. It won't be all types of illiquid assets, but we've made an investment in building out that capability. It's giving us this recurring management actions of £300 million a year. We're investing 1/3, £100 million, which will take us up to the £400 million a year. So that's what we're looking to do. Do you want to pick up the IFRS one or kick it to next week?

Rakesh Thakrar: Yes. So very briefly just to cover it off and then we can pick the detail next week. I mean you're absolutely right. So the way -- when we make an investment, it goes through nonoperating. So you've seen that. But what now you'll see the benefit of is the fact that we've got asset growth so within the asset growth, we will be getting more revenues coming through. It's a straight function of that. We continue to win new schemes. So when those new schemes come, we're getting that asset growth and we're getting that revenue. We get this increase in salary inflation coming through. If there's any future changes in auto enrollment, that can potentially be a benefit as well. And we've talked about expenses, I talked about reducing our expenses as well. So that will reduce the cost margin as well. So when you bring all that together and once we've built the proposition, what we'll also be doing is stopping those legacy outflows that we have circa £10 billion year-in, year-out. Currently that's effectively a dampener in our operating profit growing because there's policy going out. We can slow those out. So all our cash flow profiles that have currently shown assume that that business goes out. If we can get that retail as well and when we slow those outflows, that again will help reduce that dampening effect. So you can see that business growing, but we can pick more up next week.

Andrew Briggs: Andrew?

Andrew Baker: Andrew Baker, Citi. Two for me, please. First one is on the BPA volume. So in the old world, it was £300 million to be invested targeted sort of medium term 5% strain so £6 billion or so in volumes. Now you're saying similar volumes, £200 million to be invested so that's £3.3-ish billion. Obviously there'll be some sort of slight variance there. But you achieved £4.7 million at the end of '23. So it feels like you still have quite a bit to go on the strain side. How are you going to get there is the question? Secondly, just on I think it's Slide 32, the cash roll forward. So your cash balance for '26, the £700 million of nonoperating cash generation to come through. So maintaining the balance relies obviously on that £700 million. Can you just give a little bit more color on those nonoperating cash generation? And then similarly, but on the other side, we've seen some negative nonrecurring uses of cash in recent years. What's the risk that we see more of that come through? So essentially the risk of that £700 million not coming through on the positive and the risk to more nonrecurring negatives coming through?

Andrew Briggs: Okay. So I'll take the first and Rakesh will take the second. We're not setting a further new business strain target. We've got quite a few targets already, but they are sort of holistic targets across the profitability of the business overall. We still have -- we've always talked in the past and it's still the case. There are 3 levers we can pull to further improve that new business strain. So one is the yield we can get on assets and the range of assets and Mike and the team are continuing to build out a broader range of illiquid assets in different geographies. It's one of the advantages of our model. We can partner with the best asset manager in each asset class in each geography and we think that's an advantage. The second is our actuarial modeling, our Solvency II internal model. And again there's a whole program of work and that's part of the investments we've talked about here. So not only that will help us with recurring management actions, it will also help us with the strain on new business. And then the third area is reinsurance arrangements and in particular what we've done there is we've now got Phoenix Re up and running. We've done our first internal trade of some annuities from our European business into Phoenix Re so it's up and running with business in it. And what Tom and the team are focused on that this year is starting to explore potential for external capital into that. So all of those will be ways in which we could continue to improve the capital efficiency of the annuity business and always looking through our capital allocation framework to optimize the return on capital. Rakesh, do you want to pick up the second question?

Rakesh Thakrar: Yes. So looking first at what's in that nonoperating cash generation. Majority of that will be the nonrecurring management actions that we expect to be delivered. And in relation to your second point, I expect this is it. I don't expect it to be going materially out of what's reported here.

Abid Hussain: It's Abid Hussain from Panmure Gordon. Three questions I think. Just firstly coming back to the asset management business. You've already talked about the in-house capabilities that you've built with Mike and the team. Just wondering are there any more capabilities that you can build within in-housing the asset management business? I know you just mentioned sort of you just want to focus on credit, but is there anything else that you can bring in-house, add more capabilities there because it seems very critical to the £400 million or perhaps dare I say £400 million becomes £500 million down the line or whatever it may be. So any more color on that? Then the second question is on M&A and it's sort of related to the first. I know you've deemphasized M&A in terms of back books, but would you consider M&A to bring in capabilities to enhance the business? Are there any gaps where you need the capabilities and M&A is the priority whether it's asset management or elsewhere? And then the third question is on Consumer Duty. Thanks for the color on the slide. But just is there any more detail that you can give in terms of which products, which cohorts or policies were at risk of failing the fair value measure and then why do you think the £70 million provision fixes that?

Andrew Briggs: Okay. So I think I'm probably doing all of those. So on the asset management side in terms of building out capabilities, we talked to some of them. There's a number. I mean we're deepening our quant capability for example through some recent hires Mike has made and that will enable us to enhance the real-time retuning of our hedges for example across the liability side of the balance sheet. So there's a range of different areas we're working on there. We think there's a lot of potential and obviously the returns are very attractive. But I mean you might want to -- Mike sat in the front row here so you can probably catch it at the end and just get a bit more color from him on that. You said we're de-emphasizing M&A. I think the point here is that in the past when we were a closed book consolidator, the only thing we could do to grow was M&A. We now have a range of options of how we can grow. We're allocating capital where we can get the highest returns. M&A is still part of our toolkit so I don't want anyone to go away thinking it isn't. It's still part of the toolkit. It's got to compete with other things, other opportunities to deploy excess cash at attractive returns, but it's still part of the toolkit. From a capability perspective, we're really confident that we can build organically all the capabilities we need to execute on the strategy we've outlined here, but I wouldn't rule out accelerating that through acquisitions. We don't need to. I wouldn't rule it out as something we definitely wouldn't do. And then on Consumer duty, I think just to reiterate our whole business model is about we buy the books of business. We migrate the customers from a modern technology; that gives them a better experience, a better outcome. And we have our value for money framework, we apply that at the same time and we share some of the benefits of the migrations with customers on charges. So a decent proportion of our 12 million customers will be seeing an impact in that £70 million so it's a decent proportion of them. But just to be clear, value for money isn't just about charges. It's about the overall outcome. So a lot of our customers are in products with attractive guarantees. A number of customers will choose for example an investment fund that is a higher charge investment fund and we will tell those customers that's your choice entirely, but just so you're aware there's one over here that's a lower charge fund. I mean we're agnostic to that on a value perspective. It's all external fund manager fees so it's value agnostic to us. I think the other thing probably just worth drawing out, a lot of our customers have smaller pots. So even if there's a 100 basis points charge for a customer for example. If they've got £500 with us, then 100 basis points is £5 a year. I would say running a pension pot for someone for £5 a year is really good value for money, yes. And I think the key point to emphasize is that we've done this working very closely with the FCA. We're big fans of Consumer Duty. Ultimately it's all about delivering better outcomes for customers. That's what we get out of bed in the morning to do. That's what purpose-led retirement savings income business is all about. So we work really closely with the FCA throughout and we're very confident that the £70 million is a conservative provision having gone through in detail every single product in our book. Andrew, we got to you.

Andrew Crean: It's Andrew Crean from Autonomous and I do have 3 questions as well. The nonrecurring management actions, what portion of those are basically shifting surplus capital from the life company to the group and what is the level of surplus capital that you see in the life companies at the moment? Secondly, your debt leverage calculations are based on the regulatory Solvency II equity not the shareholders. All other companies are basically going down to 30% debt leverage on that basis. With £500 million, you'll still be up at around 39%, 40%. Why do you think you can run with so much greater levels of debt leverage than that? And then thirdly and related to that, your European businesses which I know you entertained at 1 stage the thought of selling. If you need to get debt leverage down, why don't you sell some of the Europeans? Is that something which you consider.

Andrew Briggs: Okay. I'll let Rakesh take the second of those and I will take the first and the third. So we're not dividing out the nonrecurring management actions into those elements. What I'd say if you look in the appendix at the end of last year, there's £2.2 billion of surplus in the life companies above the capital management policy. And what I can tell you is that our plans over the next 3 years keeps the majority of that there. The reason being, we're doing a lot of stuff here and so we want a bit of a buffer, if you like, to be confident that if we hit headwinds in any shape or form, we have a buffer. So we're being pretty conservative in terms of that lifeco capital, which hopefully gives some comfort. In terms of Europe, what we've said previously is that we're going to spend the next couple of years focused on 2 things and so now I'm going to add a kind of third on to that. So the first thing we did is move to a partial internal model. That was beneficial to the capital position, but also made it much less volatile. The second thing we're in the process of doing is we're migrating the customers off the old technology on to the TCS bank's platform. We're doing that both in Ireland and in Germany. The thing I'm going to add on is that a lot of the German business is with profits business reinsured back into the U.K. And so as part of our products and with profit simplification, we're going to explore the extent to which we could simplify that down and improve it through simplification. And what I'd say is those 3 things are absolutely the right things to do for that Europe business organically. They also would give us greater optionality as well. Rakesh, do you want to pick up on the debt side?

Rakesh Thakrar: Yes, sure. So when looking at the leverage ratio, we looked at what was widely used by debt and equity investors and certainly the Solvency II ratio calculation was one that is consistently used by both equity and debt investors and they understand it. In terms of comfort on the level of debt so what I said in the presentation, it's a balance between capital, liquidity and leverage. And then underneath that is then looking at what is the cash interest cover, how do we manage the balance sheet on a day-to-day recognizing the hedging that we do and also looking at that tiering headroom and then looking at those output metrics of what those ratios will look like. And looking at the balance of all of that getting to 30% on a regulatory basis was appropriate for us.

Andrew Briggs: We come across to Steven.

Steven Haywood: It's Steven Haywood from HSBC. Just 2 questions here. On the £250 million cost savings, I'm surprised you managed to announce £250 million cost savings considering I always thought of Phoenix as quite a lean business with its outsourcing to Diligenta. So if you could go in a bit more detail about where these £250 million cost savings coming from, that would be helpful. And then secondly, by the sounds of it with the launch of a smooth fund product I think you called it, it doesn't sound like you would be willing to put the PruFund on your platform from M&G. Can you comment about that?

Andrew Briggs: Okay. So in terms of the first one, so what we're saying £250 million cost reduction target. But just to be clear, half of that is what we talked about before in particular things like the ReAssure migration from the ReAssure platform across and half of it is a new announcement today. And the reason we're putting both in front of you is just we're trying to make it easier for you when you're modeling to see which things hit which metrics. So we're trying to give you a kind of holistic view and be very transparent in explaining the business to you. So in terms of the new half, that's coming from a combination of organizational simplification and then supplier and product rationalization. And the key point to draw out there is that basically I made the call very consciously to keep the Heritage infrastructure in place and continue doing what it does with the Heritage business while we invested in creating organic growth open businesses. Now they've grown into kind of big strapping adults. We don't need to keep those separate anymore and actually it's beneficial to us because we can then help all our customers whether they're in a Heritage or an open product on that journey to and through retirement. So as we bring together this enlarged Pensions and Savings and Retirement Solutions business going forward and no longer have this Heritage and open split, we can be significantly more cost efficient. I mean I agree with your point though, we're already cost efficient today and this just gives us a material further competitive advantage in terms of cost efficiency. And that's how we're delivering the Pensions and Savings IFRS operating profit just to kind of put some hard numbers on it. The expanding margin and the strength of that margin, the strength of that profit is coming because of the cost efficiency we have in our business and we will enhance that further going forward. And on the smooth managed fund so we have kind of open architecture for our customers. One of the projects we're working on is to have a platform capability. We're not going to build our own platform. We're going to work with a partner to rent a platform. And so ultimately the decision on whether or not we put any particular fund on that will come further down the track. But yes, I mean I look fondly at PruFund. I led the team that invented that and approved back in the early noughties. And if our smooth managed fund could achieve comparable performance, we'd be very happy. Lara?

Larissa Deventer: Larissa Van Deventer from Barclays. Just 1 question, please. If we take the £900 million of targeted profit by 2026 from the £600 million odd that we are now and we take off the £250 million of cost savings, there's actually very little implied top line growth. How should we think about the top line?

Andrew Briggs: Maybe if I kick off with that first. Our primary focus is on operating cash generation. That's ultimately the sustainable level of surplus generation in the life companies that's being dividended up to group and that's our primary focus and we're saying that's going to grow from £1.1 billion to £1.4 billion and we're being pretty transparent. That £300 million of growth; £125 million will come from cost savings, £100 million will come from recurring management actions and therefore, the balance is coming from growth. And then once we get beyond 2026, we're basically saying that the growth is going to be sufficient to drive mid single-digit growth in that going forward. So we put the IFRS targets in place here just to give everyone comfort on the future trajectory around shareholder equity, but we are running and driving the business primarily around operating cash generation. Anything you want to add?

Rakesh Thakrar: Yes. Just to build on the operating profit bit. So what we talked about the £250 million cost savings was that it was over the 3 years and by the time we exit 2026, we would achieve that target. And so when you think about it when it actually emerges in your profit line, you won't get the full -- so we already said majority of the £250 million will come through and even that, you won't get all of it because the fact that you'll be still delivering those cost savings during 2026. So therefore, the actual top line growth is actually much higher than if you just took £250 million from that £900 million. So it's a lot higher than what you're assuming because that £250 million and that's why there'll be more growth coming on after 2026. But once the full £250 million is actually developed and implemented, you'll see that in '27 onwards.

Andrew Briggs: And I will let the team outperform the targets. That's allowed there. Any final questions for anyone in the room. Andrew, any questions on the webcam?

Andrew Downey: Nothing, we haven't covered yet.

Andrew Briggs: Okay. Fantastic. Well, thanks, everyone, for your time this morning. I'm conscious there's a huge amount to digest that we covered today. Rakesh has got a session with the sell-side analysts next week. We'll be out on the road for the buy side watching over the weeks ahead as well. But very keen to engage with you, with your thoughts and reflections as we go forward. But thanks for your time today. We'll be around for a bit afterwards for any further questions as well. Thank you.

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