Earnings Call: H2 2011

Mar 23, 2012

Right. It is just about 9:30, according to the clock at the back. Welcome all. I am very pleased to see you all here this morning. Thank you for joining us for the Phoenix Group 2011 results presentation. I have our CEO, Clive Bannister, with me on the podium today, and it is a great pleasure to be introducing Paul Miles, our acting CFO, to you today. We are also joined by Mike Merrick and Chris Samuel, the CEOs of Phoenix Life and Ignis, respectively. Phoenix has come a long way in recent years. I am pleased with the progress we have made towards realizing the full potential of the business. As you know, 2011 was our first full year as a premium-listed FTSE 250 company. It is pleasing to report today that we have continued to deliver on our promises during this time, and Clive and his colleagues will tell you more about this. It is the strength and the predictability of our cash flows that underpin our business model and give us the confidence that we have in the long-term future of Phoenix. As you will recall, we were approached on an unsolicited basis by several parties during 2011 regarding a possible transaction with the group, and you will have seen in our announcement on the 10th of February that all discussions have now terminated. The company was never up for sale. As a responsible board, we are obliged to consider serious approaches. I am pleased to report that despite some external speculation about the future ownership of Phoenix, Mike Merrick and Chris Samuel and their teams have not been in any way distracted. They have continued to focus on the efficient management of our operations, ensuring that we were able to hit our financial targets for the year. 2011 was another year in which we delivered strong cash flow, incremental EV, and further de-gearing. These remain our priorities as we look with confidence towards 2012. Before going further, I would just like to take a brief moment to comment on the press release that I expect you have seen this morning regarding my own future with the company. You will have read that I have informed the board of my intention to retire at some point later this year, once a suitable successor has been found. A search process to identify my successor is now underway, and I would like to stress that there is no time pressure on the board to make this appointment. Phoenix has come a long way since I took up my appointment two and a half years ago. The company has reached a position of stability. It has a top drawer management team and effective governance. It is hitting its targets. Whilst no company's journey is ever complete, I now feel that the principal elements of what I came on board to do are solidly in place, and the time is approaching when it will be right for me to step aside. I have thoroughly enjoyed my time at Phoenix. The business has been transformed, and I am immensely proud of what has been achieved. When the time comes for me to leave sometime later this year, I shall do so in the knowledge that the company is in the best of hands. Ron, it is now my pleasure to hand over to Clive and Paul to take you through the detail of our 2011 results. After this, we look forward to answering any questions that you may have. Thank you. Ron, thank you very much. Welcome, everybody. At the end of my first 12 months as the Chief Executive of the Phoenix Group, I can look back with satisfaction at 12 months of substantial achievements. These are due to the effective combination of Phoenix Life's operational excellence and impressive asset management through Ignis, which collectively have delivered strong results despite all of the economic volatility that we have seen in the world in 2011. Here are our financial highlights, characterized as strong delivery in challenging markets. We delivered GBP 810 million of operating companies cash generation, up GBP 76 million or 10% over 2010. IFRS operating profits were strong at GBP 387 million. Our MCEV remained resilient at GBP 2.1 billion despite market turbulence. Ignis' assets under management increased by GBP 2.5 billion to GBP 72.1 billion, up a full 4%. We achieved a further reduction in leverage in the second half of 2011, bringing gearing down by 6% to 46% at year-end. We propose a final dividend of 21 pence per share, bringing the total 2011 dividend to 42 pence, in line with 2010. This is evidence of our continued commitment to returning value to our shareholders. At the start of 2011, we set clear and challenging financial targets. They were to strengthen our cash flow, to deliver enhancements to our MCEV, and to reduce our gearing to below 50%. It is excellent news that we have either achieved or exceeded all of these targets. Cash remains the most important measure for our business and the most relevant metric for our investors. It is good to report today that we delivered GBP 810 million of cash generation, which was well within our targets of between GBP 750 million and GBP 850 million. MCEV is the second key metric against which we measure our performance. We set the objective of the year to deliver GBP 100 million of MCEV enhancing actions. Again, I am delighted to report that we have over-delivered at GBP 165 million in 2011. We also set the gearing target to bring it to below 50%. At the time of our interim results, we reported that our gearing was 48%. Since then, through strong organic cash generation, we have managed to reduce this further by 2 percentage points to end the year at 46%. Later on, I will describe the new challenging targets we are setting for ourselves and the business looking out into 2012. Operational highlights. Once again, the Phoenix Group has demonstrated that it is a business and not just a balance sheet, and we continue to transform our businesses. In Phoenix Life, our operational highlights included the unwinding of the internal unwinding, big one, unwinding of the internal reinsurance arrangement between our two major life companies. We completed the fund merger of Phoenix and London Assurance into Phoenix Life, which together allowed us to reduce risk and deliver shareholder value and at the same time release cash. We completed the transfer of over 2 million policies onto a modern administration platform, which is key to our strategy for cost control as our closed life funds run off over time. We also enhanced the value of our policyholders of the distributable estate by GBP 100 million through implementing best practice estate distribution across our funds, whilst continuing to manage the funds in a prudent way. We have also continued to invest in Ignis, particularly by strengthening investment and distribution teams. One positive result has been that 11 out of 15 major life funds outperformed their respective benchmarks. In addition, we announced our intention to outsource Ignis and Phoenix Life's investment administration to HSBC. This will improve the efficiency of the operating platform and deliver shareholder value through the reduction in operational risk. I end with the observation that the Phoenix Group delivered on its financial promises by being a well-run business. Now I would like to hand over to Paul so that he can take you through the detailed financials. Thank you very much. Paul. Thank you, Clive. Morning, everybody. We are very happy to report a strong set of financial results despite the economic uncertainty and market volatility. As Clive has said, we achieved cash generation from the operating companies of GBP 810 million, an increase of GBP 734 million in 2010. We delivered strong group operating profits of GBP 387 million, including GBP 46 million from Ignis. MCEV remained broadly flat over the year at GBP 2.1 billion, with much of the adverse impact from market movements being offset by GBP 165 million of management actions. MCEV per share at the 31st of December was GBP 12.14, a 1% decline against 2010, reflecting the increase in our share capital through the scrip dividend. Our IGD surplus increased by GBP 0.3 billion to GBP 1.3 billion at the 31st December 2011, with headroom over capital policy also substantially improving by GBP 0.3 billion to GBP 0.4 billion at the year end. Ignis' strength as a manager of third-party assets was demonstrated by net inflows of GBP 1.7 billion during the year, which contributed to the increase of GBP 2.5 billion in total group assets under management to GBP 72.1 billion. Gearing reduced to 46%, well below our target of 50% on the back of organic cash generation. We are pleased to report a recommended final dividend of 21 pence per share, bringing the dividend for the year to 42 pence in line with 2010. As we said, GBP 810 million of cash was distributed to the holding companies in 2011 versus GBP 734 million in 2010, an increase of 10%. This is against underlying recurring cash flows of around GBP 400 million per annum. Mike Merrick and his colleagues in Phoenix Life generated GBP 778 million of that cash through a combination of recurring emergence of surplus and capital releases and management actions which accelerated an impressive GBP 359 million of cash. Ignis also delivered GBP 32 million of cash to the holding companies as a result of its strong performance. As expected, recurring cash outflows in 2011 remained in line with 2010, with GBP 209 million incurred through operating expenses, pension scheme contributions, and debt interest. Non-recurring cash outflows decreased from GBP 79 million in 2010 to GBP 24 million in 2011, reflecting the non-recurrence of one-offs such as the 2010 premium listing related costs and the fact that our business transformation projects are nearing completion. During 2011, we repaid 171 million of debt, an increase of 49 million on 2010. We also paid 55 million of cash to our shareholders in the form of dividends. Overall, during 2011, we have grown the cash in the holding companies by 351 million to GBP 837 million. This strong performance was achieved through the acceleration of 359 million of cash generation by Phoenix Life through management actions. Of this, 173 million was from restructuring activities. For example, we restructured a corporate loan portfolio, which allowed us to capture the liquidity premium on the underlying assets. 104 million related to risk management, including investment de-risking, and 82 million was accelerated from operational management activities, such as the resolution of legacy tax issues. Although the delivery of further management actions does get harder over time, substantial opportunities do still remain. Phoenix Life is focused on undertaking management actions which allow further cash releases to be accelerated whilst ensuring policyholders remain appropriately protected. The opening free surplus within the life companies was GBP 750 million. This is in excess of what are already strong capital policies. As expected, the market conditions, and in particular, the impact of widening credit spreads and falling yields during the second half of the year resulted in adverse investment and economic variances, which largely offset the IFRS operating profit generated during 2011. Movements in capital requirements and capital policy generated 84 million of free surplus during the year. The 2010 movements benefited from value-enhancing management actions, whereas in 2011, capital releases were offset by increases in capital requirements in annuity funds due to falling interest rates. During the year, 778 million of cash was distributed from the life companies to the holding companies, resulting in a closing free surplus of GBP 93 million. That is in excess of the strong capital policies. GBP 837 million of cash held at holding companies as at the end of the year. During 2012 to date, the impact of the adverse investment variances, which we saw in the second half of 2011, has to a certain extent reversed, and the free surplus had increased to around GBP 250 million as at the end of last week. We delivered strong group IFRS operating profits of 387 million compared to 373 million in 2010. Phoenix Life generated 395 million of that operating profit. The result was boosted by 51 million from the completion of data cleansing activities and 21 million from model changes, where we refined our operating profit assumptions. If you strip out these variances, underlying recurring operating profit from Phoenix Life remains in the GBP 275 million to 325 million range. Ignis delivered operating profits of 46 million, in line with 2010, which we believe is a strong performance given the market conditions during the second half of 2011. We are not completely immune to market conditions. As expected, the impact of the turbulence in the second half of 2011 resulted in adverse investment return variances and economic assumption changes of GBP 338 million. The key drivers of the adverse variance were the impact of the widening credit spreads and falling yields relative to prudent liabilities. The GBP 139 million amortization charge, that is a non-cash item, which primarily relates to the acquired intangibles recognized as part of the Liberty transaction back in 2009. Non-recurring restructuring and transformation costs were offset by a one-off recovery of GBP 35 million of historic costs under the management services agreements between the life companies and the service companies, as well as a GBP 37 million benefit from closing our pension schemes to future accruals. With finance costs and tax costs attributable to owners being in line with 2010, this has resulted in a loss after tax of GBP 98 million. MCEV remained broadly stable during 2011, despite the adverse economic variances of GBP 309 million, as we were able to undertake management actions which partially offset the impact of those variances and the GBP 123 million of finance costs. We calculate MCEV operating earnings based on expected returns, the long-term risk-free rate at the start of each year. As a result, the 2012 MCEV operating earnings are likely to be lower to reflect the fall in yields during 2011. MCEV was GBP 12.14 at the year-end, a 1% decline reflecting the increase in the number of shares following the scrip dividend. As we have mentioned in the past, our MCEV excludes the value of future profits from Ignis, which for purposes of gearing, we value at GBP 0.4 billion. Including Ignis would increase the MCEV by approximately GBP 2 per share. During 2011, we generated GBP 165 million of incremental embedded value through management actions. We achieved this by delivering GBP 94 million through operational management initiatives, including the migration of policies onto a new administration system and the resolution of legacy tax issues, GBP 39 million through investment de-risking, and GBP 32 million from restructuring activities, which, for example, included the one-off recovery of historic costs under the management services agreements between the Life companies and the service companies. We have made significant progress towards our target of delivering GBP 400 million of incremental embedded value between 2011 and 2014. Our IGD excess capital, representing the solvency capital within the group available to meet adverse experience, increased by GBP 0.3 billion in 2011 to GBP 3.1 billion. This is primarily due to the overall positive investment returns in the main with profit funds, as well as the impact of management actions undertaken during the year, which have improved the IGD surplus and headroom. The IGD surplus increased from GBP 1 billion at the start of the year to GBP 1.3 billion at 31st December 2011, and headroom over capital policy increased from GBP 0.1 billion to GBP 0.4 billion at year-end. Improvement in both these metrics reflects the impact of Life company simplification actions undertaken during the year, including the unwinding of the internal reinsurance agreement between Phoenix Life and Phoenix Pensions. That had an adverse treatment under IGD. Also, we benefited from completing the fund merger of Phoenix and London Assurance and Phoenix Life Limited. At the time of our interim results, we presented detailed analysis of the asset mix within our Life companies and the level of exposure to eurozone debt and equity securities. We have updated this analysis, and you can find the detail in the appendices. Since half year 2011, we have proactively worked to reduce our shareholder debt exposure to peripheral eurozone countries from GBP 862 million to GBP 363 million. This exposure now represents 2% of total shareholder debt securities. Equally, we have reduced our shareholder exposure to the sovereign debt of peripheral eurozone from GBP 161 million at half year to GBP 9 million at the year-end. We have no shareholder exposure to Greek sovereign debt or equities and remain entirely comfortable with this level of overall exposure. All of these numbers are fully mark to market and reflected in the IFRS and MCEV numbers we have reported today. Assets under management increased by GBP 2.5 billion to GBP 72.1 billion, despite the run-off of Life company assets of GBP 4.4 billion. We are very pleased to report that Ignis achieved net new money inflows of GBP 1.7 billion over the year, mainly relating to liquidity and real estate funds, and the liquidity-driven investments mandate from one of the group's pension schemes, which was won in a competitive tender. Ignis' strong investment performance during 2011, which saw 11 out of 15 of its biggest life funds performing ahead of benchmark, is reflected in the positive market movement of GBP 5.8 billion. Evidence of Ignis' forward momentum is shown by its successful new product launches, such as its absolute return government bond fund, which combines innovation with attractiveness for deep demand pools. This brings us to the end of the detailed financials. I hope you will agree that Phoenix Group has delivered another set of strong results, demonstrating balance sheet strength despite the market turbulence of the second half of 2011. With that, I would like to hand back to Clive. Thank you. Thank you, Paul. With our financials completed, I would like to spend a few minutes describing the Phoenix Group strategy and looking forward to our targets. The Phoenix Group has a vision. It is to be the saver-friendly industry solution for safe, innovative, and profitable management of closed life funds, alongside our leading asset management business, Ignis. It is important to have a vision. It fixes our destination and strengthens our resolve for the journey ahead. In this slide, we set out the key steps on the Phoenix Group journey, which will make that vision a reality. Our focus is to re-term our debt. It is not the quantum, but the profile of our debt which needs to be addressed. Aligning our debt profile to the profile of our longer term cash flows and resolving our historic covenant constraints will represent an important and necessary step forward. In parallel, and indeed over the short to medium term, we will strengthen our businesses, Phoenix Life and Ignis. In the former, our actuarial systems transformation project, which is well underway, goes hand in hand with the launch of Solvency II and the reporting required under the new regime. Combined, the new operating platform will ensure our existing business can be run ever more efficiently. As Ignis improves its investment performance, its objective is to win more external mandates and grow its third-party business, building both profits and an independent reputation. These are the steps to deliver our vision for Phoenix. We are very confident about the Phoenix business model. It is a compelling proposition. We are certain of our ability to harvest value for our shareholders through the inherent stable and predictable long-term cash flows within our existing standalone book of business. We announced a cumulative cash flow target of GBP 3.2 billion from the operating companies for the period 2011 through to 2016. We reiterate that target today. Looking beyond 2016, we have a business that is expected to generate a further GBP 6 billion of cash flow in the coming years. Our focus is very firmly on ensuring that this inherent value gets delivered to our shareholders. The value proposition of a Phoenix Group lies in these cash flows. In 2011, we reduced gearing to 46% through organic cash generation. Overall leverage has come down from 58% since 2009. That represents a 12% decline and a reduction in net debt of GBP 1 billion. These impressive statistics highlight that the debt issue before the company is not related to credit, but as I said earlier, focused on the proper alignment of our debt profile to the company's longer term cash flows. We need a better symmetry between our cash flows and our debt repayment profile. In addition, through re-terming our debt, we will seek to ease the covenants that cap our dividend payment capability and restrict certain aspects of our business. Re-terming our debt is our number one priority in terms of corporate activity. The more tranquil financial market conditions since the year end, the increase in our holding company's cash, and the improved IGD headroom generated during 2011 reinforces our confidence in our ability to progress these re-terming discussions. As I have said before, any debt re-terming has to be completed on terms that are sensible for all of our stakeholders. We continue to have cordial relationships with our banks. I thank them for their support in 2011 for the Phoenix Group and look forward to continuing our discussions. I am delighted that we met or exceeded all of our financial targets in 2011, and today we set challenging targets for 2012 and beyond. We set a cash generation target for 2012 of between GBP 500 million and GBP 600 million. We expect this to be weighted towards the second half of 2012. We reiterate our previously announced cumulative cash generation target of GBP 3.2 billion from 2011 to 2016. At the end of the year, we had already achieved a gearing ratio of 46%, and we now set a new target to reduce that gearing ratio to 43% or below by the end of this calendar year. Finally, having delivered GBP 165 million of incremental embedded value during 2011, we reiterate our MCEV management actions target of delivering GBP 400 million of incremental embedded value by 2014. To conclude, we have delivered a strong set of results today which demonstrate the resilience of the Phoenix Group. We remain convinced of the inherent value of this business and have a clear strategy to deliver that value to our shareholders. Our focus is to re-term our debt to ensure that we achieve the financial targets we have set ourselves, and to continue to achieve operational improvements in Phoenix Life and in Ignis. This brings us to the end of the formal part of the presentation. Thank you very much for your engagement. I'd now like to move on to Q&A. Would you please wait for the microphone to come? If you could give us your name and the institution you represent, then we'll answer the question, and at the end, we will catch up with any questions that may be on the phone or on the internet. Thank you very much indeed. Right. We can start the Q&As. Ed, there's one here in the front row. Ed Hawkes, Exercise Two. With GBP 837 million of cash on the balance sheet, you seem to be in a good position now to renegotiate your bank debt. Perhaps you give us more color of where you are on that. Ed, thank you. Thank you, Chairman. Thank you for that question. There is a long answer and there is a short answer. Let me start with the short answer. The company is in a stronger position this year than it was last year, and I think the markets are more benign, and I think that gives us confidence in the discussions that we have regarding the re-terming of the debt. If I can put some color on that. If we look back at last year, with the best will in the world, the last six months were very turbulent in the external markets, and I don't think there was an appetite, there was an inhospitable environment to engage in re-terming senior debt with banks who were worried about their RWAs. If I look at our own company in 2011, our headroom over our IGD surplus was about GBP 100 million. Not as much firepower as we would have liked because basically, a pound of debt repayment diminishes our IGD measure. And I think we also were cautious as a company and with the full support of the board to maintain high liquidity balances during a period of economic turbulence. So that is if I take a backward look. If I look forward, I think the world is in a different place. LTRO and other mechanisms mean that I think banks are willing to engage and entertain looking at risk-weighted assets, and that is a more hospitable environment in which to hold discussions. Our own headroom above our IGD surplus has gone from GBP 100 million to GBP 400 million, and that just provides us with more firepower. And then finally, I think you alluded to the fact that we have more cash. That has moved from GBP 486 million at the end of the last year to a number which is now 837, and that gives us, again, the resources. So I end where I began. I think the company is stronger. I think the world is in a more benign place, and we look forward to seeking a re-terming. It is, of course, a question of getting better symmetry, aligning our cash flows against our debt profile. It is not a question of quantum, and we want to do something which is sensible for all of our stakeholders. Oliver. Oliver Steele, Deutsche Bank. Just following up on that. Can you give us some sort of idea as to where, if you are able to renegotiate the debt with the banks, what sort of interest cover might you be aiming for in the longer term? Over what period would you be looking to return the debt? What sort of uplift in interest costs you might expect if you were to renegotiate anything? I do not know whether you are going to tell us any of this. A very good question, Oliver, and I do not think you have finished yet. We have got spread, term, yield. At the very least, you might perhaps put a little bit more color on all of that. Here is an easy question. How much of that 800 odd million of cash is included in the IGD solvency? Right. I think you preempted my answer a little bit. I am not going to anticipate the nature of the discussions that we are talking about. They, of course, include term, they include spread, and other aspects. I said in my presentation, we are looking forward to the easing of the covenants with regards to dividends and also some of the business covenants as well. Navigating this territory is quite complex. We want to do it in a manner that acknowledges that complexity and ends up with a fair deal for all stakeholders, recognizing that we have been well-served in our capital structure by competitively valued debt. That is the way I am answering the first part of your question. Can I turn to Paul for the second part? In terms of the GBP 800 million cash and the IGD, they are essentially separate constraints. One is not necessarily part of the other. But in terms of if we have GBP 800 million cash available, we are still constrained by our IGD headroom in terms of how much we can pay down. Obviously, over time, we can undertake more management actions to uplift that IGD headroom to give us more capacity to enable us to pay more down going forward. James. Morning. James Pearce from UBS. Three questions. First of all, could you comment on how you are going to generate the EV enhancement through management actions over the next couple of years? What sort of things are you looking to do? I think it excludes the merger of the two life silos. Is that still the case? Second, can you confirm that the bank debt is still off balance sheet for the purposes of Solvency II, as best you understand it? Third, the free surplus fell to GBP 93 million. Can you give us an update on that number? How is it currently? If it did fall negative, would you feel the need to put money into the life business? James, thank you. Can we do them in reverse order? Paul, would you deal with the free surplus issue and how we feel? Yeah. Then perhaps touch on the EV and what our thoughts are, and then share that, I think, with Mike, and Mike deal with the solvency question. Starting with the free surplus. We obviously started off with the free surplus of GBP 750 million at the start of the year. In relation to our overall cash target of GBP 3.2 billion between 2011 and 2016, the intention was always to pay the majority of that down over that period to enable us to deliver against the GBP 3.2 billion target. We've said in the past that our cash flows are resilient, but not immune to market stresses. We've obviously had a significant market stress in the second half of 2011, and that was probably in line with the sensitivities that we set out at the half year position. The market stresses came as a surprise, but the impact of it didn't come as any surprise to us. We've been able to reiterate our target of GBP 3.2 billion. We're still confident that we're going to achieve that. The composition is probably slightly different to what we set out before. In terms of overall of the GBP 3.2 billion, we've delivered GBP 800 million of it. We've got GBP 2.4 billion left to deliver over five years. That's GBP 480 million. We probably deliver around GBP 400 million of underlying cash flows, which over the five years is about GBP 2 billion. Now within that target, we are including some new management actions of around GBP 300 million to GBP 400 million. In terms of what's left of the free surplus of the GBP 93 million, that is still above the strong capital policies that we have, and that has increased to over GBP 250 million now. In answer to your question, if it did go negative, then in that situation, we would look to deliver more management actions to bring that back to positive. When it's positive, it's then that we can draw money out from the life companies, obviously subject to the Life company board. There was a question about EV. EV enhancing Solvency II. In terms of the GBP 400 million target and what's left to do, Paul's talked earlier about the kinds of categories in which the management actions were delivered in 2011. It's precisely continuation of the same kinds of activities that would get us to the GBP 400 million, and it does not include the merger across the silos. To answer the Solvency II question, could I ask you to repeat the question again, please? James, in answer to your question, I think you're asking where is it in terms from an IGD perspective. It's still off balance sheet from that perspective. Yes, absolutely. Do you expect it to remain off balance sheet under Solvency II? We don't know the position as yet. It depends how Solvency II develops. Ashik. Thanks. Ashik Musaddi from JP Morgan. Just two questions. Can you give a split of your cash flow release? What part of that is from required capital and what part is from emergence of surplus? That is first number. Second thing is, you have mentioned in your press release that you have identified some more actions so as to improve your IGD surplus. Can you give some details on what kind of actions you have identified? Thanks. In terms of the cash flow, we will not give you a split between the two elements. We tend to give guidance around the overall underlying cash flow, and we have said that is around GBP 400 million per annum. In terms of the IGD actions, a good example would be the funds merger that we are currently undertaking that will drive additional IGD benefit, which is the funds merger between NPI and PLL. Hi, it is Toby Langley from Barclays. I have got three questions. One, again, on the free surplus. That recovered, I think, in the release, you said by about GBP 200 million or so. How much of that is market versus organic capital generation? The second question is on your Ignis valuation. Can you tell us what growth rate assumption you have got in the assets that drives that? Then the cleansing one-offs in the IFRS, can you go into a bit more detail about what they are or what is it you are cleaning? The free surplus improvement, the majority of that is market related. It is narrowing of credit spreads and the slight improvement in the yields. Sorry, I did not capture the Ignis question. You value Ignis about 15 times earnings. What growth rate have you got in there on your assumption? It's essentially a VIF valuation, so it's our discounted future forecasts. We're not going to give you a growth assumption in that. You can't give me that? No. What's the discount rate, then, to back it out? What's the discount rate applied on that, then? I will have to come back to you on that. I cannot remember off the top of my head. It was the cleansing. The example, the cleansing. Clive talked earlier about 2 million policyholders that have been moved from one policy platform to another. As part of that process, we necessarily go through and validate all of the data that is on our policy administration systems. Simply, we found GBP 18 million of policy liabilities that had already been paid out, so could be removed from it. Cleaning the data in that way. So it's finding liabilities that you just don't need to recognize anymore? Yeah. And we will be doing future migrations of a similar nature in future years. Obviously, that book that's now gone across to that has been cleaned up now. Thanks. It's Andrew Crean, Autonomous. A couple of questions. Given the improvement in the environment this year, with the LTROs improving IGD surplus, and as you say, more cash, would that change your attitude to unsolicited approaches? You can listen to them, you don't have to. Secondly, a hypothetical question. As and when you do re-term, can you give us some sense as to what sort of dividend payment you would be thinking of related to the GBP 400 million of sustainable cash flow per year, so that we can get some sense as to where the yield would settle? Well, maybe I can just take the first one. I don't think it's possible to give a blanket policy in terms of how one would respond to any unsolicited approaches. Certainly, any change in the environment doesn't cause us to think in advance about how we might respond. We will obviously treat any approach, should an approach ever be received, on its merits at the time. But I think the important point in all of this is that we are very confident in the future of this group as a standalone entity. We are not seeking any approach. We are certainly not going out and looking for any form of corporate activity. I very much expect that the group will continue to prosper under its own steam going forward. Thank you. Ron, I completely agree with that comment. The second question about what would be our dividend policy going forward in the event that we and when we achieve a re-term. That's quite hypothetical. Dividend policy is set by the board, and it's done in the context of a group's own capital position and the liquidity. I'm not going to go and forecast a dividend policy looking forward to the future. Are there any more questions? Hello, it's Trevor Moss from Berenberg here. I think a couple of questions. Firstly, in the event that you were able to deliver a reconstruction of your bank facilities, are you quite happy that the debt silos would be able to be maintained above the holding company level from an IGD perspective? That's the first question. Secondly, I'm thinking in the event that you were able to pull the two silos of bank debt together, so that you would have the life companies underneath that single bank silo, if you like, is there any additional constraint on what you could do in terms of further management actions between those two life fund silos? Or would that effectively facilitate some fund mergers within that process? Can I answer the question? First of all, you said twice, if. It is our intention to find a re-term because we expect to do that with our banks. I just wanted to make that very clear. The second point was to do with the restructuring of our two silos, and can I hand that over to Paul? I think you're saying if we could put them together, is there any other constraint in terms of what we can then do in terms of fund mergers? The answer to that, I don't think there is. I think it is the banks that are the main constraint. Obviously, other than the usual processes that you need to go through as part of a Part 7 transfer. Then your first question around the IGD and where does the debt sit. As I mentioned earlier, we still don't know from a Solvency II perspective, but there's nothing to lead us to believe at the moment that it will be treated any differently from how it is currently. But I guess the original debt being above the holding company level from an IGD perspective was effectively something that was signed off by the FSA. Yes. I'm trying to figure out whether you need to have effectively pre-approval from the FSA before going ahead and merging those silos, or whether you can engineer a bank reconstruction and then apply to the FSA to approve it, effectively, to maintain it in the position where it is. Because clearly, if it had to move down into a more normalized structure, that would be problematic. I think it would be fair to say, it's in our interest, it's in the FSA interest, it's ultimately in the bank interest for us to do re-terming. I don't see any reason why they would want to do anything to prevent that. We certainly don't see the FSA as representing any constraint on what we might wish to do in terms of the balance sheet of the group. It's Barrie Cornes from Panmure Gordon. Just one question on Ignis, if I may. You mentioned about rationalizing back office and outsourcing. Just wondered if you could tell me what sort of cost savings you'd anticipate from that. Also leading on from that, what the long-term outlook would be for offices such as your Glasgow office at Ignis? There's not insignificant financial benefit from the outsourcing. I'd take you back to some of the earlier comments. It's in fact outsourcing two things, both the investment accounting for the life companies as well as the back office for Ignis. In fact, most of the financial benefit accrues in this transaction to the life company. So there won't be any significant impact over time on Ignis. The outlook for Glasgow is the same as I've said in the past, which is that we are very excited about a dual center model. We will continue to have an important presence in Glasgow and an important presence in London. Thank you. Are there any other questions? Are there any questions coming over from the. Ah. One question on the internet or on the phone. Do you want to put that through, Lucy? Good morning, gentlemen. We have a question from the line of Marcus Rivaldi from Morgan Stanley. Please go ahead, Marcus. Good morning, everybody. I have got three questions, please. Firstly, now the FSA has given its guidance on liquidity swaps. What is your view of those as an attractive route to boost investment returns, and what is the appetite that you are seeing within banks post LTRO? Secondly, on longer term, your leverage guidance. You have always talked about leverage in line with an investment grade rating. Can you give some more clarity, please, as to how further maybe leverage could fall below that 43% post ending this year? Then just finally, one quick question for Ron, please. I am just trying to understand a little bit more about why you see now as the right time to be looking to pass the baton on. Obviously, given recent sort of changeover in the senior management team. Thank you. Ron, do you want to do that first? Oh, certainly. There's very little that I can add to what was in the statement or indeed to my earlier remarks. The group has come an extremely long way in the 2 and a half years since I joined the company. I'm proud of what has been achieved. I think a position of stability has now been achieved, which is such as to allow me to be able to retire. You will know, or you may know, that I left Paternoster and Northern Rock when these companies were sold. Phoenix is my sole residual core commitment, and my retirement really is simply closing this particular chapter in my career. I do so in the knowledge that the group has laid very strong foundations to achieve whatever it needs to achieve to realize the vision that Clive Bannister set out earlier. Ron, thank you. Marcus, let me answer your second question about leverage guidance that you were looking for. Let's look at the direction of travel that we have come along, and we talk about that 12% reduction in leverage since 2009 to 46%, and our target to get down to 43% or better this calendar year. The journey traveled is about GBP 1 billion in reduction of our net debt. That is evidence of the strength of our organic cash flows, and we intend to continue doing just that. We don't have an idée fixe about what it should be. We would like to get to the point where we have tradable Still looking at the announcement from the FSA in terms of what it is we want to do. There clearly is still appetite out in the market, and obviously if we do something, we will announce something going forward. That was it really on liquidity swaps. Just a quick follow-up on that last one. Is there any sort of guidance you can give on what you would hope in terms of return enhancement you could achieve through these sort of transactions? Well, the market does move quite quickly in this. The type of transaction we were potentially looking to do, we are reviewing what it is in light of the FSA guidance. It is difficult to comment on that at the moment. Okay. Thank you. Lucy, are there any more questions? Any more questions from the floor or on anything? Marcus Barnard from Oriel Securities. Just a quick question. Are you intending to maintain the scrip dividend for the foreseeable future? We certainly are intending to maintain it for this particular dividend. We are not giving any further guidance in terms of future dividend policy. I think that brings to the end the formal session. My colleagues and several of my colleagues in the audience will happily stay around and have coffee and answer any more detailed questions you may have. Thank you very much for your engagement. I end where we began. It is an extraordinary business, a compelling business model that looks out in the future with great comfort about being able to deliver the cash flows that we have talked about. Thank you very much indeed for your time.